Is Self-Custody for You?



You must have heard of “not your keys, not your crypto” But what does it actually mean?


To help you understand the importance of this term we’ve delved into what cryptocurrency wallets are, what self-custody is, its benefits, and compared custodial vs non-custodial wallets.

After reading this you will be pro on self-custody!


What is a Crypto Wallet?


A crypto wallet allows you to send and receive cryptocurrencies like Bitcoin and Ethereum. crypto wallets store your private keys, these private keys are the passwords that secure your assets and make them readily available to you.


Crypto wallets technically don't store your crypto. Your holdings are actually stored on the blockchain and require a private key to access them. Your keys which are held by your crypto wallet enable transactions and serve as proof of ownership for your digital currency.


You cannot access your money if you forget or lose your private keys, it’s imperative you have secure copies that are not stored online as anyone who has access to your keys will have complete control over your assets.


Since you are in control of the private key, self-custody means that only you are the owner of your crypto or other digital assets. Because your private keys are not kept anyplace else, it is your full responsibility to protect who has access to your private keys.


Custodial wallets versus non-custodial wallets


Custodial wallets are regarded as having a low barrier to entry because they are simple to use and accessible from any device with an internet connection.


But security is a significant issue as users with custodial wallets don't actually have ownership over their crypto assets because the private keys are kept by a third party, such as a cryptocurrency exchange or wallet provider. Users must put their trust in the third-party custodian to protect their assets instead of having the responsibility of full ownership themselves!


While some service providers provide insurance for the cryptocurrencies they keep, custodial wallets have historically resulted in significant losses due to poor management and/or carelessness with regard to protecting users' assets. This is all too familiar with the recent meltdown of FTX.


The reason many people turn to custodial solutions is that they do not want to deal with the technical hassle of managing their own assets. To put it another way, they make use of third parties such as exchanges like FTX, which let you invest in cryptocurrencies without having to figure out how to use a self-custody wallet. As many have now learned the hard way, they are waking up to how important it is to understand how to self-custody their assets. This leads us to non-custodial wallets.


With non-custodial wallets, users themselves are responsible for storing their private keys, which involves setting up online hot wallets or offline cold wallets to protect their holdings. We’ve broken down use cases for each below!





Whilst self-custody provides you with the security of owning your private keys and in turn, being in full control of your assets it comes with a different type of risk and that risk is YOU!


You see having the independence to act as your own banker entails having the sole responsibility of safeguarding your assets, there is no helpline or insurance for you to claim lost or stolen funds.

Is it worth learning how to self-custody?


In our opinion it’s a must when operating in web3 you should be able to navigate centralized and non-centralized exchanges with the knowledge of being able to transfer assets to and from these exchanges using both custodial and non-custodial solutions the choice between the two will be dependent on the use case.



Here are some benefits and drawbacks of non-custodial wallets so you can decide how to manage your assets!


Benefits

  1. 1. As we already know the prime benefit is that you do not need to rely on a third party to manage your funds or carry out any related tasks, you have full ownership and control of your assets.

  2. The risk of any data breach is also much lower because you are solely responsible for all the information related to your wallet and the assets your private keys hold.

  3. You can make instant withdrawals, unlike custodial wallets, you do not need to rely on a third party performing every transaction, this simplifies everything and provides peace of mind being able to move assets freely.

  4. Privacy, with non-custodial wallets you do not have to KYC if you want to keep your identity private it’s a better option

Drawbacks

  1. It takes a lot of responsibility to be in charge of your own security. Even the slightest error could result in theft, deletion, or unintended consequences.

  2. You will typically encounter user interfaces that are a little more challenging to comprehend.


For further reading check our mini blog on Custodial and Non-custodial wallets here!


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If you're hearing a lot about cryptocurrencies lately and wondering what they are, you're not alone. Cryptocurrencies are digital or virtual currencies that use cryptography for security and decentral