Recent events highlight the importance of controlling your crypto holdings. Celsius’ bankruptcy in 2022 led to users losing their deposits, and a judge recently declared that Celsius owns their funds and those investors “do not own their account.” The collapse of FTX followed immediately, with users losing more than $8 billion, according to a Time.com report.
Self-custody in cryptocurrency is holding and securing one’s digital assets instead of entrusting them to a third party, such as a centralized exchange. The practice is becoming more popular as more individuals want to own their crypto. A post on Reddit shows how the supply of Bitcoin on centralized exchanges has decreased since the emergence, apparently for the first time.
Various factors may contribute to this phenomenon, such as security concerns, privacy considerations, and a desire for more authority and independence. This article aims to provide an in-depth analysis of self-custody, covering its advantages and disadvantages, the different alternatives accessible, and best practices for individuals who wish to manage their cryptocurrency asset independently.
The benefits and risks of controlling your private keys
Self-custody refers to a person or entity holding the private keys of their cryptocurrency wallets. This practice is different from depending on a third party service to do this. Keeping your crypto in your private storage offers many benefits. Full control over your assets is one of the most important advantages. Additionally, when you hire a third party to store your keys, you trust that provider to protect your assets and funds.
The issue is potentially problematic due to the many unauthorized breaches of third-party exchanges and affiliated entities, resulting in financial losses for their clients. However, if you keep your keys, you are fully responsible for the safety of your possessions, which you can make more secure by following the usual protection and storage measures.
Self-control provides the advantage of enabling individuals to maintain authority over their personal information. However, providing personal information is not a mandatory requirement for accessing the various services offered by third-party entities. Individuals who prioritize their privacy and are reluctant to disclose such information to an external entity may harbor concerns. Self-custody allows you to control your personal information and eliminate the need to share it with other parties.
Self-service also gives you more control over the transaction fees you have to pay. For example, third-party services such as centralized exchanges may add their own additional fees for buying, selling, or trading crypto. Self-custody allows you to choose the software for your wallet and manage the fees connected to your transactions. It can be especially useful if you are involved in many trades and are looking for ways to reduce the costs associated with transactions.
Self-care can also expose a person to various potential problems. The loss of private keys poses a major threat, resulting in the unavailability of wallet funds. People who are careless about where they keep their keys and how they protect them may be at risk for this problem.
One of the risks of controlling your private keys involves a lack of understanding by non-technical users. For example, suppose you are not comfortable dealing with the more technical aspects of cryptocurrencies and need to fully understand how to store and preserve your private keys. In that case, there may be better solutions than self-care for you.
Despite some drawbacks in practice, self-control is an important concept for crypto investors to understand. In addition, users have greater flexibility and freedom due to the decentralization of cryptocurrency.
How investors get custody of their crypto assets
Investors can only take custody of their crypto assets by storing them in a wallet that gives them control over the private key and phrase. There are a variety of options, from hardware wallets and desktop applications to browser extensions and mobile wallets.
For example, Ledger and Trezor are known as the biggest hardware wallet brands. Ledger also has a mobile and desktop app that allows users to manage their balances and send or receive crypto by connecting to a hardware wallet via Bluetooth (iOS) or USB (Android and Desktop). In addition, they support many blockchain networks and ERC-20 tokens (tokens built on Ethereum).
Giddy is a self-custodial cryptocurrency wallet and decentralized financial investment platform. The platform is a mobile application on Android and iOS devices. The private key is shared and stored in multiple user-controlled areas. Even if one of the parts of the private key is compromised or lost, the remaining parts keep the private key secure and it is still possible to retrieve it.
The Trust Wallet owned by Binance is another option for a non-custodial wallet that functions only as a mobile application. It’s a simple self-hosting solution, and the app can interact with dapps on multiple networks. Like other wallets, it supports most cryptocurrencies and ERC-20 tokens, allowing users to store thousands of crypto tokens.
Coinbase Custody is Coinbase’s self-custody solution that stores private keys directly in the user’s browser or mobile device. However, this option is only available to institutional investors with at least $10 million to deposit. So if your pockets are heavy and you are weighed down, this solution may be for you.
Final thoughts
Self-custody of cryptocurrency is a powerful way to control your digital assets and have greater autonomy in managing them. By holding your private keys, you are responsible for the security of your assets and can choose your transaction fees.
While self-care has some risks, such as the potential loss of your keys and the need for a level of technical knowledge, the benefits of greater control and freedom make it a important consideration for any cryptocurrency investor. Self-care can become a more attractive option as the blockchain sector develops for people and businesses who want to control their digital assets.