Not Your Keys, Not Your Coins: Cryptowisser on the Growing Importance of Self-Custody

The global lockdown that took place at the turn of the decade played a big role in the popularization of Bitcoin, and cryptocurrency in general. It wasn’t just the average person who did all that they can to learn more about the new and exciting world of digital coins. Businesses decided to finally jump on this bandwagon as well.

Among the first markets to take crypto seriously were, surprisingly, online casinos. Bitcoin and Ethereum were staples of online gambling transactions early on. But the Casino Groups staff has noted a marked increase in the popularity of casino platforms that now utilize crypto, or even build around a blockchain. 

The growing crypto craze has caused many people to question some aspects of the market. The biggest question that new crypto enthusiasts seem to be posing has to do with self-custody. That is why, in this article, we tackle the importance and advantages of self-custody when it comes to cryptocurrency.

What is Self-Custody?

The simplest question we have to answer is what exactly do crypto traders mean when they talk about self-custody? The phrase itself lends a clue as to what the answer is. Self-custody in crypto is all about ownership. Who is the one that stays in control of the assets that they own? The answer may be obvious, but anyone who has been involved with crypto for a long time will know that it is not that simple. 

In the past few years, crypto traders have relied on third-party platforms like exchanges. The operators behind these websites provide easy and accessible access to the crypto market for beginners as well as more experienced traders. It is why the best crypto exchanges are highly regarded by their clients. But even clients who happily utilize these services will tell you that they have to sacrifice a certain level of autonomy to do so.

The point of cryptocurrency is to become self-reliant. When Satoshi Nakamoto conceptualized Bitcoin, they were thinking of the philosophies of Friedrich Hayek that argue for decentralization of currency. That is why more and more people are becoming interested in the concept of self-custody. The term really refers to the act of taking control of your own private keys, giving you full access to your own assets. 

My Keys, My Coins!

The main goal of self-custody is to maintain control of one’s own finance. The phrase “Not Your Keys, Not Your Coins!” began circulating among crypto enthusiasts in the past five years a lot more frequently. It is a revolt against third-party exchanges and an argument in favor of returning to the standard peer-to-peer, proof of stakes system that the crypto market was founded on. 

But how does one go about maintaining control of their own assets? The first step is to get a self-custodial wallet. Without it, a crypto user cannot be said to have control over their crypto stash. There are those who may ask why ownership is important. The worst thing that many modern crypto traders can imagine happening is a minor inconvenience. A transaction fee here or a spending limit there is really not something to worry about. But there are far worse consequences to worry about.

The Consequences of Non Ownership 

It is true that minor inconveniences are probably the most that crypto traders would deal with. However, it is always good to prepare for the worst case scenario. For those who’ve entrusted their private keys to a third-party platform, the worst case scenario would be said business going under. Bankruptcy could cause the business to lose everything, which would mean that their clients would be left with no way to access their funds. In essence, a business going bankrupt might result in their clients losing all of their savings as well.

Another thing to think about is that many of these crypto projects still rely on centralized entities. The FIAT-backed stablecoins are an excellent example of how the modern crypto market has become intertwined with centralized institutions. Attempting to go all in on decentralization doesn’t mean much if the product being used relies on the existence of traditional financial institutions. 

Privacy is Key

One of the biggest reasons that so many crypto enthusiasts were drawn to the market initially is the promise of privacy and anonymity. Blockchains are public ledgers, which worries many modern crypto users. It is why so many prefer to keep their wallet addresses anonymous. The only issue is that a custodial wallet does not allow for complete privacy. 

Anyone who has used a traditional custody wallet has undergone a process called Know Your Customer. KYC policies are a relatively new government mandate, that requires online businesses to ask for the personal information of their users. The idea is to combat identity theft and control underage people from getting access to products or services that require an age limit. 

The downside of this is that every customer must volunteer their own personal information, which often includes a name, some form of identification, personal phone numbers and more. The shared information might never see the light of day. But once a user shares said data, how it is used is out of their hands. It is why so many are opting for self-custody wallets instead.

Navigating Self-Custody

It is important to understand that self-custody means extra responsibility. Those who opt for this option will have to deal with both the advantages and difficulties of handling a self-custody wallet. One of the big issues is the irreversibility of a blockchain transaction. Non-custody wallets may implement some protections against scams or mistakes. But those who’ve opted for self-custody have to do the due diligence of handling their transactions all by themselves.

Security is another concern. This means that self-custody users must take extra care to protect their seed phrase. They must also take every precaution possible to defend against external threats. Segregating crypto assets and using hardware wallets is a good place to start. But it is just that, a starting point. Those who can manage the pressure will surely benefit from self-custody. But one must realize that there is a lot of work ahead for those who’ve chosen this route.