The rise of crypto wallets represents&ensp;a significant innovation in fintech. Those wallets can be very useful for businesses because, with them, many people can have access to funds depending on roles and permissions.
Depending on the type, cryptocurrency wallets also help in managing digital assets and allow businesses or individuals to control funds without banking, as they retain the full autonomy of&ensp;funds, or even trade assets without manual transfers. In this article, we are going to see what is the difference between a custodial and non-custodial wallet.
<div id="form-description" class="form-description" data-title="Key Takeaways" data-text="The custodial wallet requires identity verification, breaching the user&rsquo;s anonymity, while the non-custodial wallet is pseudonymous. 
Since non-custodial wallets operate independently of centralized exchanges (CEXs), transaction speed depends on blockchain network conditions, leading to delays in crypto operations. 
Although the custodial wallet relies on the Know Your Customer policy, the risks of cyber security attacks arise because of the required identity verification.">
<div class="form-description-title">Key Takeaways</div>
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The custodial wallet requires identity verification, breaching the user&rsquo;s anonymity, while the non-custodial wallet is pseudonymous.&nbsp;
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Since non-custodial wallets operate independently of centralized exchanges (CEXs), transaction speed depends on blockchain network conditions, leading to delays in crypto operations.&nbsp;
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Although the custodial wallet relies on the Know Your Customer policy, the risks of cyber security attacks arise because of the required identity verification.
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</ul>
</div>
<h2 dir="ltr" style="text-align: justify;">Foreword: The Essence of Private Keys</h2>
Hold on! Why is it important to discuss the private key and how it comes with the custodial and non-custodial wallets? Let&rsquo;s define this cryptographic element and analyze its functions and importance for crypto wallets.&nbsp;
The crypto wallet generates a private key, which represents an alphanumeric code consisting of a large string of letters and numbers. The primary functions of a private key include enabling the users to authorize transactions and prove ownership of their assets.
This alphanumeric cipher matters to any crypto wallet type as it generates a digital signature. A private key is used to sign the transaction, which is transmitted to the blockchain, but prior to being added to the block, it requires verification. The computers operating the blockchain check the user&rsquo;s public key to verify the digital signature, and if it is correct the transaction is approved and recorded permanently on the blockchain.&nbsp;
The private and public keys are paired, which ensures the transaction&rsquo;s security due to the resistance to tampering and the impossibility of making any changes on the block. Hence, private keys are central elements of a crypto wallet, so let&rsquo;s discuss their essence in custodial and non-custodial wallets.&nbsp;
<h2 dir="ltr" style="text-align: justify;">What Is a Custodial Wallet?</h2>
The custodial wallet meaning can be defined as a wallet in which a third party, such as an exchange or bank, holds the private keys of the users. This means that the client is not in full control of their funds, as they rely on the custodian who secures and manages their transactions.&nbsp;
There are the following features of the custodial wallets:
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Simplified Usability
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The custodial wallets represent an opportunity for beginners to trade their crypto assets without managing private keys.&nbsp;
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Options for Account Recovery
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If users lose access to their accounts, they will be able to recover their funds as the custodian holds their private keys on the centralized server. The users will only have to verify their identity.&nbsp;
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Support Opportunities
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A central unity manages the client&rsquo;s wallet, providing them with support like undoing the transaction.
Some of the best custodial wallets to consider are: Coinbase, Gemini, BitMex, BitGo, Binance, and Bitfinex.
<h2 dir="ltr" style="text-align: justify;">What Is a Non-Custodial Wallet?</h2>
When analyzing the non-custodial vs custodial wallet, the first one provides clients with full ownership of their private keys and funds, respectively. This autonomy defines the non-custodial wallet meaning that no third party will handle the user&rsquo;s funds and operations. This excludes issues like account freezing and withdrawal restrictions. There are the following distinctive features of the non-custodial wallets:
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User&rsquo;s Full Ownership
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The non-custodial wallets function within the decentralized ecosystem, meaning that no centralized unity will manage the wallet.
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Direct Blockchain Interaction
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A non-custodial wallet does not require an intermediary; transactions occur directly on the blockchain.&nbsp;
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Increased Privacy
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The users don&rsquo;t have to abide by the Know Your Customer policy and verify their identity in the non-custodial wallet. This crypto wallet type preserves pseudoanonimity.
<a class="incut--wrap" style="transition-property: all;" href="https://agilie.com/blog/digital-wallets-types-ideas-and-future-of-such-products" target="_blank" rel="noopener" aria-label="incut"><img style="float: left;" src="https://d3pxw3l8cozu05.cloudfront.net/images/f9e66e179b6747ae54108f82f8ade8b3c25d76fd30afde6c395822c530196169-1740483774764.png" width="100%" height="100%" />Gain insights into the essence of e-wallets, their benefits, and examples.</a>
<h2 dir="ltr" style="text-align: justify;">Difference Between Custodial and Non-Custodial Wallet</h2>
Based on the aforementioned analysis of two crypto wallet types, their meaning, advantages, and disadvantages, it would be essential to provide a short summative recap, as well as additional details on the differences between the custodial wallet vs non-custodial wallet, focusing on the following metrics.
<h3 dir="ltr" style="text-align: justify;">Security</h3>
<h4 dir="ltr" style="text-align: justify;">Custodial Wallet</h4>
The custodial wallet is less secure than its non-custodial counterpart, considering its vulnerability to cyberattacks. Hackers can attack the centralized servers and obtain access to multiple accounts.
Credential harvesting is a phishing type of cyberattack which aims to steal a user&rsquo;s login and password so that the attacker can access their account. The attackers send the falsified site links, almost identical to the real ones, via SMS or email, so by entering their credentials, the victim provides them with access to their funds.&nbsp;
<h4 dir="ltr" style="text-align: justify;">Non-Custodial Wallet</h4>
The non-custodial wallets depend on the private keys owned by the users, which decreases the risks of theft. Nevertheless, attackers can obtain the key due to malware attacks, which can infect the computer or smartphone as in the case of clipboard hijacking malware attack.&nbsp;
The malware functions, so to say, silently in the device, monitoring the clipboard. When the user copies the wallet address, the malware substitutes it with the attacker&rsquo;s one, so the victim sends them their funds unintentionally.&nbsp;
<h3 dir="ltr" style="text-align: justify;">Ownership of Private Keys</h3>
<h4 dir="ltr" style="text-align: justify;">Custodial Wallet</h4>
In the custodial wallet, it&rsquo;s the custodian&rsquo;s responsibility to hold the user&rsquo;s private keys, which limits the latter&rsquo;s control over their funds. This is one of the most significant disadvantages of the custodial wallets for the following reasons:
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Lack of Client&rsquo;s Full Ownership Over Their Finances.
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The client has access to accounts but relies heavily on the custodian&rsquo;s controls over the transaction&rsquo;s approval.&nbsp;
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Withdrawal and Transaction Restrictions
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The custodian can delay or block the transaction based on governmental policies, which can limit the fund movement.&nbsp;
<h4 dir="ltr" style="text-align: justify;">Non-Custodial Wallet</h4>
In the non-custodial wallet, the user holds the private keys by themselves, which is simultaneously convenient and requires a decent level of responsibility not to lose them.&nbsp;
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No KYC Compliance
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The non-custodial wallet does not rely on the KYC policy, so the user doesn&rsquo;t have to verify their identity to proceed with the transactions, showing their full ownership over their funds.&nbsp;
<h3 dir="ltr" style="text-align: justify;">Ease of Use&nbsp;</h3>
<h4 dir="ltr" style="text-align: justify;">Custodial Wallet</h4>
Custodial wallets are easier to use as the client does not have to know the precise details of the exchange work. If the user wants to undo the operation, customer support can help with that.&nbsp;
<h4 dir="ltr" style="text-align: justify;">Non-Custodial Wallet</h4>
Non-custodial wallets require decent knowledge about the work of blockchain and smart contracts, as minor mistakes can lead to the loss of funds with no refund option, representing one of the core challenges of this wallet type.
<a class="incut--wrap" style="transition-property: all;" href="https://agilie.com/blog/top-7-crypto-wallet-apps" target="_blank" rel="noopener" aria-label="incut"><img style="float: left;" src="https://d3pxw3l8cozu05.cloudfront.net/images/f9e66e179b6747ae54108f82f8ade8b3c25d76fd30afde6c395822c530196169-1740483930529.png" width="100%" height="100%" />Check out 7 potential crypto wallets you might use.</a>
<h2 dir="ltr" style="text-align: justify;">Choosing the Right&nbsp;Wallet&nbsp;for Your Business Needs</h2>
You might be interested in how to choose the right wallet type per business needs. It's time to discuss the most suitable cases to use custodial and non-custodial cryptocurrency wallets.
<h3 dir="ltr" style="text-align: justify;">Custodial Wallets</h3>
The custodial wallets are a valuable option for businesses that need an insured and regulated service. For instance, Greyscale, a leading crypto asset manager, utilizes Coinbase Custody, which improves its scalability and contributes to success due to alignment with NYC banking laws as the wallet is regulated by NYDFS, one of the most prominent financial regulators in the world.&nbsp;
<h3 dir="ltr" style="text-align: justify;">Non-Custodial Wallets</h3>
The non-custodial wallets are best suited for businesses that manage crypto without third-party integration, and those companies with DeFi projects and NFT platforms. For instance, Open Sea, a web3 marketplace for NFTs, applies Meta Mask, which improves its scalability and success by integrating Layer 2 support like Polygon network for lower fees and faster transactions.
<h2 dir="ltr" style="text-align: justify;">Who We Are</h2>
Agilie is a European IT outsourcing organization that crafts custom digital products for businesses and startups in fintech, real estate, healthcare, and marketing domains. By providing our clients with three outsourcing models, like the dedicated team, staff augmentation, and project-based outsourcing, Agilie elaborates on tech-savvy software relevant to&nbsp;<a href="https://agilie.com/expertise/fintech" target="_blank" rel="noopener">fintech</a>,&nbsp;<a href="https://agilie.com/expertise/fintech/payment-solutions" target="_blank" rel="noopener">payment solutions</a>, and&nbsp;<a href="https://agilie.com/expertise/fintech/mobile-banking" target="_blank" rel="noopener">mobile banking</a>.&nbsp;
When it comes to the&nbsp;<a href="https://agilie.com/expertise/fintech/blockchain-software" target="_blank" rel="noopener">blockchain software development services</a>, Agilie can help you craft:
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Cryptocurrency
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Crypto Wallets
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Blockchain
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Smart Contracts
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NFT
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<h2 dir="ltr" style="text-align: justify;">Conclusion</h2>
The article analyzed the features, advantages, disadvantages, and differences of custodial vs non-custodial crypto wallet types. Both introduce unique approaches to handling finances, such as the client&rsquo;s full ownership of the private keys versus the custodian&rsquo;s. Nevertheless, when choosing a wallet type, you have to take into account the elements of security, anonymity, and tech knowledge to make your trade or transactions secure and minimize risks.&nbsp;
<a class="incut--wrap" style="transition-property: all;" href="https://agilie.com/contacts" target="_blank" rel="noopener" aria-label="incut"><img style="float: left;" src="https://d3pxw3l8cozu05.cloudfront.net/images/f9e66e179b6747ae54108f82f8ade8b3c25d76fd30afde6c395822c530196169-1740484028707.png" width="100%" height="100%" />Are you eager to craft a personalized crypto wallet? Then contact us to get a consultation!</a>

Explore the differences between a custodial wallet vs non-custodial wallet, their features, and use cases.

Explore the differences between a custodial wallet vs non-custodial wallet, their features, and use cases.

Custodial vs Non-custodial Wallet: Explained & Compared | Agilie

Learn about the cost of building a banking app based on its features, dev process, UX/UI design, and wireframe.

Learn about the cost of building a banking app based on its features, dev process, UX/UI design, and wireframe.

Banking App Development Cost | Agilie

Blockchain has become a paradigm shift that changes the operations of different industries. Nevertheless, like any other disruptive technology, a lot of myths and misconceptions have appeared. We should differentiate between fact and fiction to use blockchain technology effectively and responsibly. We can better understand what blockchain is (and isn&rsquo;t), how it functions, and the varied applications it holds besides cryptocurrencies by clarifying these misconceptions.
<div id="form-description" class="form-description" data-title="Key Takeaways" data-text="Blockchain is not just about Bitcoin; it is the technology that can transform different fields. 

Blockchains are strong but not flawless, and being aware of the possible weak sections is a very important thing in keeping the network safe.

Educational investment and partnerships with software development experts are the main factors for businesses that will use blockchain technology.">
<div class="form-description-title">Key Takeaways</div>
<ul style="text-align: justify;">
<li dir="ltr" aria-level="1">
Blockchain is not just about Bitcoin; it is the technology that can transform different fields.&nbsp;
</li>
<li dir="ltr" style="text-align: left;" aria-level="1">
Blockchains are strong but not flawless, and being aware of the possible weak sections is a very important thing in keeping the network safe.
</li>
<li dir="ltr" aria-level="1">
Educational investment and partnerships with software development experts are the main factors for businesses that will use blockchain technology.
</li>
</ul>
</div>
<h2 dir="ltr" role="presentation">&nbsp;Myth 1: Blockchain and Bitcoin Are the Same</h2>
Among the most common myths about blockchain technology is the confusion between the blockchain and Bitcoin. Blockchain and Bitcoin were created simultaneously, so they are widely believed to be the same thing. However, we must understand that blockchain is a much broader term. It is the technology that created Bitcoin. While Bitcoin is indeed the first and most famous application of this technology, equating the two is like saying that Google is the Internet.
Blockchain is a decentralized digital ledger technology (DLT) that records transactions across multiple computers so that the records cannot be altered retroactively, without the alteration of all subsequent blocks and the consensus of the network.
This makes blockchain a naturally secure and transparent method of data and transaction recording.&nbsp;
Bitcoin is a type of digital currency based on blockchain technology and used for secure, anonymous, and decentralized financial transactions. The blockchain of Bitcoin acts as a public ledger for all the transactions in the Bitcoin network, thus, it is possible to transfer digital currency securely without the use of intermediaries like banks or governments.&nbsp;
Blockchain technology can be much broader than purely financial transactions. It can be used in different industries with various aims. Nowadays, many businesses are studying how <a href="https://agilie.com/blog/enterprise-blockchain-development-how-businesses-derive-benefits" target="_blank" rel="noopener">enterprise blockchain development</a> can improve their operations.

Here are a few examples:
Healthcare: Blockchain can guarantee the safety of medical records storage and sharing. Thus, they are only available to authorized personnel and patients and lead to quicker diagnosis and treatment.​
Financial Services: Blockchain is a viable solution for international payments, real-time settlements, and improving transaction transparency and security.
Digital Identity:&nbsp; Blockchain can correct identity theft and fraud by adding digital identities that cannot be changed. For example, Estonia's e-Residency program is the first of its kind, a government-issued digital identity that allows entrepreneurs from anywhere in the world to operate and conduct business online in the EU.
Real Estate: Blockchain can simplify property transactions such as sales, leasing, and financing by reducing paperwork and improving transparency.
<a class="incut--wrap" style="transition-delay: 0s;" href="https://agilie.com/blog/the-evolution-of-blockchain-from-bitcoin-to-business-applications" target="_blank" rel="noopener" aria-label="incut"><img style="height: 344px; width: 778px;" src="https://d3pxw3l8cozu05.cloudfront.net/images/f9e66e179b6747ae54108f82f8ade8b3c25d76fd30afde6c395822c530196169-1716280829344.png" width="100%" height="100%" />Learn more about the evolution of Blockchain from Bitcoin to business applications.</a>
<h2 dir="ltr">Myth 2: Blockchain Transactions Are Always Anonymous</h2>
A frequent mistake people make about blockchain technology is that it is automatically anonymous to its users. However, the truth is more nuanced. Blockchain transactions are not strictly anonymous but pseudonymous.
Pseudonymity means that a user's identity is not directly tied to their blockchain transactions but rather to a digital pseudonym, typically a public key or a blockchain address. These addresses are like a sequence of letters and numbers, giving privacy but not total anonymity.
In contrast, anonymity would mean that the transactions are entirely disconnected from any identity, even a pseudonym, making them untraceable to the user. Blockchain does not usually provide this level of anonymity because the transaction history of each blockchain address is visible to anyone who accesses the blockchain.
Most blockchains are open ledgers, meaning that all transactions are visible to anyone who wishes to view them. This level of transparency ensures that while users' identities are not directly exposed, their transaction histories and patterns can be analyzed.<span style="font-size: 11pt; font-family: Roboto, sans-serif; color: #000000; background-color: transparent; font-weight: 400; font-style: normal; font-variant-ligatures: normal; font-variant-caps: normal; font-variant-alternates: normal; font-variant-numeric: normal; font-variant-east-asian: normal; font-variant-position: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> 
<img src="https://d3pxw3l8cozu05.cloudfront.net/images/f9e66e179b6747ae54108f82f8ade8b3c25d76fd30afde6c395822c530196169-1716280901953.png" />
While basic blockchain transactions offer pseudonymity, several enhancements and tools can increase privacy:
1. Mixing Services: Services like CoinJoin allow multiple users to combine their transactions into a single transaction with multiple inputs and outputs. This mixing blurs the traceability of any single coin, making it more difficult to link wallets with identities.
2. Privacy-Focused Cryptocurrencies: Some cryptocurrencies, like Monero and Zcash, are designed specifically to enhance privacy. Monero uses ring signatures and stealth addresses to hide the transactions&rsquo; origins, amounts, and destinations. Zcash allows users to shield transactions completely through its zk-SNARKs technology, which enables transactions to be verified without revealing the sender, receiver, or amount.
3. Use of Multiple Addresses: Users can increase their privacy by using multiple wallets or addresses, dispersing their transactions across several points, which makes it more challenging to link them to a single identity.
<a class="incut--wrap" style="transition-delay: 0s;" href="https://agilie.com/blog/blockchain-tech-trends-how-to-stay-ahead-of-the-curve" target="_blank" rel="noopener" aria-label="incut"><img style="height: 344px; width: 778px;" src="https://d3pxw3l8cozu05.cloudfront.net/images/f9e66e179b6747ae54108f82f8ade8b3c25d76fd30afde6c395822c530196169-1716280997458.png" width="100%" height="100%" />Explore key blockchain technology trends and stay ahead in its innovation with insights and practical examples.</a>
<h2 dir="ltr">Myth 3: Blockchains Are Unhackable</h2>
The idea that blockchains are completely unhackable is a frequently held misconception that can cause a dangerous level of complacency in security measures. While blockchain technology does offer robust security features, it is not immune to vulnerabilities. Knowing the security features employed and the situations in which breaches happen is very important for anyone who wants to use blockchain for their business.
Blockchain technology secures data through several mechanisms:
Cryptography: Every transaction on a blockchain is secured using cryptographic algorithms, which ensure that data can neither be altered nor read without the appropriate cryptographic key.
Decentralization: By distributing copies of the ledger across a network, blockchain reduces the risk of a single point of failure that could compromise the entire system.
Consensus Protocols: Blockchains use various consensus mechanisms, like Proof of Work (PoW) or Proof of Stake (PoS), to agree on the validity of transactions. These protocols prevent a malicious actor from changing even a single aspect of the blockchain.
<a class="incut--wrap" style="transition-delay: 0s;" href="https://agilie.com/expertise/fintech/blockchain-software" target="_blank" rel="noopener" aria-label="incut"><img style="height: 344px; width: 778px;" src="https://d3pxw3l8cozu05.cloudfront.net/images/f9e66e179b6747ae54108f82f8ade8b3c25d76fd30afde6c395822c530196169-1716281102044.png" width="100%" height="100%" />Learn more about our blockchain software development services.</a>
Despite these security measures, there are scenarios where blockchains can and have been compromised.
<h3 dir="ltr">Scenarios Under Which Breaches Have Occurred</h3>
51% Attacks: This type of attack happens when a single entity gains control of more than 50% of the network&rsquo;s mining hash rate or stake, allowing them to manipulate transactions and potentially double-spend coins.&nbsp;
Code Vulnerabilities: <a href="https://agilie.com/blog/secure-smart-contract-design-best-practices-in-solidity-programming" target="_blank" rel="noopener">Smart contracts</a>, which are self-executing contracts with the terms directly written into code, can contain vulnerabilities. One of the most famous incidents is the DAO attack on the Ethereum network. Hackers exploited a vulnerability in the DAO (Decentralized Autonomous Organization) smart contract code to siphon off one-third of the DAO&rsquo;s funds.
Phishing and Social Engineering: End-user security is often the weakest link in a blockchain system. Phishing attacks can allow attackers access to blockchain assets, bypassing network security measures, to steal private keys or wallet credentials.
<img src="https://d3pxw3l8cozu05.cloudfront.net/images/f9e66e179b6747ae54108f82f8ade8b3c25d76fd30afde6c395822c530196169-1716281254703.png" />
<h2 dir="ltr" style="text-align: justify;">Conclusion</h2>
The blockchain technology is often seen as highly popular and muddled at the same time.&nbsp; Falsified myths are only part of the misconceptions that can mislead such a fantastic technology. Similarly, proper professional knowledge and strategy can help blockchain perform to its potential in various fields.&nbsp;<a href="https://agilie.com/blog/your-own-cryptocurrency-from-scratch-everything-you-need-to-know-to-create-your-cryptocurrency" target="_blank" rel="noopener">Building your own cryptocurrency</a> can be a strategic move for businesses seeking to innovate and tap into new digital markets.
At <a href="https://agilie.com" target="_blank" rel="noopener">Agilie</a>, we understand that dealing with a complex environment is also a significant challenge. This is why we create powerful blockchain systems and wish to educate our clients regarding the breadth of blockchain-utilizing services. Therefore, such solutions can be tailored to your industry's concrete necessities and problems.
<a class="incut--wrap" style="transition-delay: 0s;" href="https://agilie.com/contacts" target="_blank" rel="noopener" aria-label="incut"><img style="height: 344px; width: 778px;" src="https://d3pxw3l8cozu05.cloudfront.net/images/f9e66e179b6747ae54108f82f8ade8b3c25d76fd30afde6c395822c530196169-1716281316627.png" width="100%" height="100%" />Contact us to find out how our blockchain development services can help you achieve your goal.</a>

Discover the truths about blockchain technology as we debunk common myths and clarify its applications to empower businesses with informed integration.

Discover the truths about blockchain technology as we debunk common myths and clarify its applications to empower businesses with informed integration.

Blockchain Myths Debunked: Separating Fact from Fiction | Agilie

Nowadays, blockchain reshapes the functionality of the fintech industry, invoking a significant interest in institutions that work with financial operations directly. We&rsquo;re talking about accounting, which starts integrating blockchain technology to its daily operations.&nbsp;
Accounting is a noticeable area for blockchain innovation due to the significant improvements it can present. Businesses experience growth of interest in secure financial operations. The elimination of a single-point failure and cryptographic encryption can reduce the dependency on the centralized intermediary and protect financial transactions by improving security and economizing protection costs simultaneously. The article analyzes what is blockchain used for in accounting and its benefits.
<h2 dir="ltr" style="text-align: justify;">How Blockchain Is Transforming Accounting</h2>
As a distributed and public ledger, blockchain benefits versatile fintech and business branches due to its possibility to record transactions that cannot be altered. The impact of blockchain in accounting is significant as it eliminates manipulations with records and minimizes human errors. We&rsquo;re going to focus on fraud prevention and error detection capabilities of blockchain in accounting.&nbsp;
<a class="incut--wrap" style="transition-property: all;" href="https://agilie.com/blog/the-role-of-cryptography-in-blockchain-security" target="_blank" rel="noopener" aria-label="incut"><img style="float: left;" src="https://d3pxw3l8cozu05.cloudfront.net/images/f9e66e179b6747ae54108f82f8ade8b3c25d76fd30afde6c395822c530196169-1739370419274.png" width="100%" height="100%" />In this article you can learn how cryptography makes blockchain safe and the consensus mechanisms its work is based on.</a>
<h3 dir="ltr" style="text-align: justify;">Fraud Prevention</h3>
Blockchain undermines the pain point of fraudulent actions through immutability and security.&nbsp;
<ul style="text-align: justify;">
<li dir="ltr" aria-level="1">
Immutability
</li>
</ul>
As stated above, the transaction is recorded, while the record is immutable. This is important for accounting to fraud prevention because it makes it difficult for fraudsters to manipulate revenue or conceal expenses.
<ul style="text-align: justify;">
<li dir="ltr" aria-level="1">
Safety
</li>
</ul>
Authorized parties can access a real-time ledger, proving that blockchain can reduce the likelihood of fraudulent reporting. The auditors can cross-check the transactions in real-time, which greatly reduces the risk of any manipulations in the financial statements.
Moreover, with triple-entry accounting, the blockchain makes it hard&ensp;to commit double-entry fraud. Transactions are cryptographically linked and recorded in the distributed&ensp;ledger, making identifying fraudulent actions easier.
<h3 dir="ltr" style="text-align: justify;">Error Detection and Overcoming</h3>
Blockchain helps to identify common human-factor mistakes and helps overcome them via smart contracts and AI integration.&nbsp;
<ul style="text-align: justify;">
<li dir="ltr" aria-level="1">
Human Errors within Data Entry
</li>
</ul>
Blockchain helps resolve issues like incorrect figures or duplicate entries. Multiple parties validate the transduction cryptographically prior to recording. Smart contracts will automate the transactions, minimizing human input.&nbsp;
<ul style="text-align: justify;">
<li dir="ltr" aria-level="1">
Duplicate Transactions
</li>
</ul>
Blockchain can help prevent accidental duplication of invoices, expenses, or payroll payments based on the correct realization of smart contracts or transaction control systems. The chances of record duplication are reduced as each transaction gets a unique cryptographic signature. Blockchain&rsquo;s task is to ensure a real-time reconciliation by underlining the duplicate entries.&nbsp;
<ul style="text-align: justify;">
<li dir="ltr" aria-level="1">
Transaction Misclassification
</li>
</ul>
Another human error in accounting is assigning the wrong category for revenue, expenses, or&ensp;liabilities, which results in erroneous financial statements. Smart contracts and AI analyze transactions and mark inconsistencies, while the immutable ledger ensures proper classification.
<h2 dir="ltr" style="text-align: justify;">Key Benefits of Blockchain in Accounting</h2>
Accounting organizations can optimize their record processing, minimize fraud, and economize financial input by integrating blockchain technology. Let&rsquo;s analyze the advantages of blockchain in accounting into the following categories.
<h3 dir="ltr" style="text-align: justify;">Transparency</h3>
The blockchain works on the distributed ledger that instantly&ensp;records any transactions and displays them to authorized users. The immutable ledger eliminates the possibility of changes and is deleted once the finance-relevant operation is recorded. Finally, one of the key benefits blockchain brings to accounting is the absence of dependency on centralized units. All the required stakeholders and auditors are independent in verifying transactions.
<h3 dir="ltr" style="text-align: justify;">Security</h3>
Blockchain and accounting are intertwined based on security intensification. Now, let&rsquo;s analyze how exactly blockchain helps accounting improve the security of its operations.&nbsp;&nbsp;
Blockchain assists accounting services in preventing and reducing fraudulent activities due to the cryptographic security mechanisms that protect against unauthorized access. Another way of supporting safety in accounting is securing financial data through advanced cryptographic encryption. Blockchain can prevent unauthorized alterations in the transactions via the consensus mechanisms that verify and record those operations.&nbsp;
Finally, as in blockchain, there is no need to rely on a third party; decentralized storage minimizes the risks of cyberattacks. For instance, Deloitte relies on machine learning in blockchain that helps check, mark anomalies, and set a risk rate for the transaction.&nbsp;
Nevertheless, it is important to remember the existing threats of cyber attacks on the users&rsquo; non-custodial wallets, smart contracts, and network nodes. The intermediary can store data in a centralized server, making it vulnerable to a single-point attack, while in the blockchain, decentralized storage eliminates this single-point failure and reinforces tamper resistance, making the records immutable based on the blockchain hashing.&nbsp;
<h3 dir="ltr" style="text-align: justify;">Efficiency</h3>
Blockchain in accounting applies smart contracts that automate financial transactions. Manual intervention and processing are not required. The ledger facilitates real-time financial reporting, so&ensp;there are no delays in data processing. The distributed nature of the ledger allows auditors to determine if the transaction was legitimate. Overall, blockchain improves the efficiency of accounting services by minimizing the need for repeated data entry, which minimizes human errors.&nbsp;
<h3 dir="ltr" style="text-align: justify;">Cost Savings</h3>
Blockchain minimizes overhead and manual transaction processing by excluding the dependency on third parties and eliminating the need to perform manual audits.&nbsp;
Blockchain favorably affects compliance costs by ensuring automatic alignment with accounting regulations. Finally, blockchain minimizes costs associated with error corrections and fraud detection.&nbsp;
<h2 dir="ltr" style="text-align: justify;">How Can Blockchain Be Used in Accounting?</h2>
Indisputably, the organization specializing in accounting can benefit significantly from integrating a decentralized ledger due to improved security, optimized time, and efficiency in verifying and operating transactions. But what are the practical examples of blockchain in accounting? Let&rsquo;s clarify.
<h3 dir="ltr" style="text-align: justify;">Auditing and Assurance</h3>
Traditional accounting depended on third-party confirmations to check and verify whether the financial record was legitimate. Audits were time-consuming due to manual proceeding and verification. Blockchain functionality is based on the smart contract, which benefits audit compliance. It is possible to pre-program specific financial processes to follow audit rules automatically. Auditors don&rsquo;t have to wait for periodic reports. Instead, they can access data in real time.&nbsp;
<h3 dir="ltr" style="text-align: justify;">Tax Compliance</h3>
Traditional manual tax management faced the challenges of income misreporting or purposeful dedication, which led to tax evasion and non-compliance. Here on, tax audits can be time-consuming to complete.
Integrating blockchain into accounting can eliminate invoice falsification. Smart contracts can automate the process of invoice verification in real-time prior to processing the tax claim. However, the correctness of data depends on the source information checked by the accountants. The immutable ledger ensures no record can be altered, eliminating the manipulation of tax-relevant data. Finally, due to the integration with the API of tax offices, smart contracts can calculate and file tax automatically based on recorded transactions.&nbsp;
<h3 dir="ltr" style="text-align: justify;">Payroll Management</h3>
Payroll management encountered the dilemma of ghost employees who could divert and manipulate funds. Implementing blockchain technology in accounting can eliminate potential fraudulent actions in the following ways. Smart contracts can contribute to payroll automation by the automatic proceedings over the salaries only when the predefined conditions are met. Secondly, in blockchain, the payments will be analyzed only when the ID of the verified worker matches with the work records. The next point is that blockchain ensures the records are tamper-proof, meaning that no insider can manipulate the payroll records.
<h3 dir="ltr" style="text-align: justify;">Supply Chain Finances</h3>
The accounting organizations faced the problem of delayed payments from suppliers. The issue emerged because of the prolonged manual invoice verification. Moreover, manual reconciliation between vendors and clients delayed accounting processing. As blockchain provides real-time reconciliation, it can be integrated to eliminate the presented problems. This translates to real-time transaction recordings, removing the need to carry out manual reconciliation. One of the examples of blockchain in accounting is EY&rsquo;s blockchain analyzer reconciler applied to reconcile and match transactions. The approval of received items stimulates automated payment processing, which eliminates data manipulations, providing accounting with real-time financial tracking.&nbsp;
<h2 dir="ltr" style="text-align: justify;">Agilie, Your Reliable Partner</h2>
Agilie is a European IT outsourcing organization that crafts from scratch and optimizes software solutions that align with our clients' boldest ideas. Specializing in fintech, mobile banking, and payment solutions, our software benefits multiple industries, including fintech, marketing, logistics, healthcare, real estate, etc. We aspire for client-centricity by aligning with the client&rsquo;s unique needs and embedding them into effective and time-preserving SDLC-based product development.&nbsp;
Our&nbsp;<a title="blockchain software services" href="https://agilie.com/expertise/fintech/blockchain-software" target="_blank" rel="noopener">blockchain software services</a>&nbsp;include:&nbsp;
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<h2 dir="ltr" style="text-align: justify;">Conclusion</h2>
The article answered the question of how is blockchain used in accounting by demonstrating its advantages and use cases. Blockchain technology excludes the reliance on intermediaries and streamlines efficiency by minimizing manual reconciliations and ensuring security and cost-effectiveness.
Smart contracts automate the transaction verification process, can prevent data falsification, and, by operating on decentralized storage, will make sure that no single entity will have control over the financial records and operations. Therefore, it is important to collaborate with skilled IT professionals who can integrate blockchain technology into your system to ensure the security and integrity of your accounting processes.
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