Self-Custody Explained – “Not Your Keys, Not Your Coins”

Self-custody gives people total control over their cryptocurrency without having to trust anyone.

This is a revolutionary concept that’s present for the first time in human history. And yet, many ignore it – even investors with hundreds of thousands in the cryptocurrency market.

Of course, some of them may still be able to transact, trade, or send their assets… But they’re not in control over them.

The custodians are.

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“Not Your Keys, Not Your Coins” Explained

The actual ownership of a crypto wallet boils down to having the private keys that control it.

Period.

When you buy crypto on an exchange, you don’t really have any control over your assets. The exchange does – they have the keys to the wallet where the cyrpto actually is.

What you have is their promise that, when you ask them to, they will allow you to transfer it or trade it for FIAT money.

So you need to trust them that they won’t break this promise.

And this relationship can last for years, even with a happy ending for many… But technically, you’re at the mercy of the exchange.

Technically, you don’t own your crypto.

Crypto Exchanges vs Self-Custody

Any exchange that you gave your coins to (i.e. where you hold your assets) can literally freeze your account, pause withdrawals, or simply disappear with your money. These actually happen more often than you’d expect.

I often hear arguments that a certain exchange is “established”, “reputable”, “not a ponzi”, “not a scam”, etc.

Nothing wrong with having an opinion.

Just let’s not pretend that this doesn’t boil down to trust.

“Reputable” Exchanges

Okay, let’s say we can be 100% sure that the exchange of choice won’t run away with our money, although technically they can.

What we can’t be sure of is that the exchange itself won’t suffer from a third-party attack, commonly referred to as “get hacked”.

We can’t be sure that your password and 2FA won’t be bypassed by a social engineer, commonly referred to as “a hacker”.

We also can’t be sure that the local government won’t tell them to “freeze all accounts of residents of country X” and they’ll be forced to comply in order to stay in business.

And it’s not only oligarchs and third-world countries that are susceptible to this… Canada froze bank accounts of its own citizens.

Whatever I say here, I won’t communicate it better than Jesse Powell, the CEO of Kraken (one of the best exchanges out there at the moment of writing):

Link to the tweet

And worth mentioning, when you give your coins to platforms that generate “passive income”, you are even more vulnerable.

On top of everything I mentioned so far, you also bear the risk of the platform going bankrupt.

They’re not generating that yield without risks.

If you want to see the realistic rates you can earn, you can check DeFi options such as Aave.

How to Self-Custody

The ownership of a crypto wallet boils down to having the private keys that control it.

A private key is a string of alphanumeric characters that allow users to access and use the funds in a crypto wallet.

Many beginners are afraid to start with self-custody because they think it’s too technical/complex/difficult.

It’s not – crypto is now more mainstream and there are many user-friendly solutions available.

It basically boils down to using a non-custodial wallet – an application that stores the private keys and enables you to enjoy full ownership of your assets. Such examples are Exodus (multi-currency wallet, available as a standalone app), MetaMask (the most popular wallet for Ethereum and EVM compatible networks, available as a browser extension), and many others.

When setting any of these up, you’d be presented with a 12 or 24 word seed phrase.

The Seed Phrase – Your Proof of Ownership

A seed phrase is a sequence of English words, usually 12 or 24, which can be used to regenerate your private key.

Remembering/having these words means that you’ll always be able to access the digital assets in that wallet.

The seed phrase, and thus the ability to control your assets, lives in your head.

Not on some server of a company and not in your laptop.

This makes your digital assets independent of the specific software. If it stops being supported, you just import your seed phrase in another wallet and you’re all set!

It also makes you unaffected by hardware malfunctions of your laptop or phone. You just import your seed phrase using another device and you’re good to go!

But most importantly, you’re also not affected by bankruptcies, negligence, centralized hacks, or border control bullies trying to meddle with your money.

In summary and without getting too technical, ownership of your seed phrase means ownership of the address it controls. And although not the same, the term “seed phrase” became synonymous with “private keys” because of how practically similar they are.

The one and only thing that you should do is not share your seed phrase with anyone.

Because whoever has those words, has total control over the assets they control.

The Last Steps to Self-Custody

This is the simple part.

Upon set-up of your non-custodial wallet, it will provide you with an address you can deposit to. Do the following steps:

Log in to the exchange which controls your crypto
Click withdraw all

Congratulations!

You’re finally a proud owner of your digital assets.

Conclusion

Once you own your assets, absolutely no one can interfere between you and your wealth.

And when third-parties decide to use their authority on violence to enslave you, they’ll endure defeat.

Actually, this is exactly what happened when the oppressive regime of Canada asked a non-custodial wallet provider to “freeze” users’ accounts.

This is the response they got:

[We are] a self-custodial, collaborative-multisig Bitcoin wallet. We are a software provider, not a custodial financial intermediary.

We also do not hold any keys. Therefore:

We cannot “freeze” our users’ assets.

We cannot “prevent” them from being moved.

We do not have knowledge of the existence, nature, value and location of our users’ assets. This is by design.

Please look up how self-custody and private keys work. When the Canadian dollar becomes worthless, we will be here to serve you too.

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