When It Comes to Crypto Security, It’s All About Location, Location, Location
Securing your crypto is more crucial than it's ever been. We explain they why and the how of improving the safety of your digital assets.
Securing your cryptocurrency assets is more crucial than it’s ever been. We explain the why and the how of how to improve your crypto safety.
Crypto self-custody explained
‘Custody’, according to the Oxford, means ‘under the protective care or guardianship of someone or something’. “But isn’t that the role of my exchange, i.e. keeping my crypto safe?” I hear you ask.
The simple answer is “Yes”, but the more complex and accurate one is that“. Yes, it should be, but this doesn’t always happen…” In much the same way as money isn’t always safe in a bank; exchanges are open to fraud and failure.
One of the main advantages of self-custody is that it allows you to have full control and ownership of your cryptocurrency.
When you hold your cryptocurrency on an exchange or in a digital wallet provided by a third party, you are trusting them to keep your funds safe and accessible.
Lately, there have been many instances where exchanges have been hacked or have gone bankrupt, resulting in the loss of customers’ funds.
Because you hold your own ‘private keys’ (more about this later), you remove the risk of losing your funds due to a third-party failure. Having a self-custody wallet is like having a super secure digital ‘safe’.
Related: Custodial vs. non-custodial wallets.
Not all wallets are created equally
All of us are familiar with the idea of a ‘physical wallet’ or a ‘purse’ used to keep our notes, coins and cards safe.
You may even have a digital wallet, such as a Google Wallet, Venmo or PayPal. Your online wallet with your crypto exchange is simply a further iteration of this concept and offers you a place to store your digital money.
All of these place trust in a platform to securely store and help you transact your assets…and therein lies the risk.
Self-custody wallets (also called non-custodial wallets) are different from all of these because they are required to transact using the blockchain.
In basic terms, blockchain is simply a digital record or ledger. Every transaction ever conducted on the blockchain is recorded on this ledger and unlike a bank, public blockchains make this information open to everyone.
Blockchain can be used to record sending digital money as well as services like borrowing, investing, and trading.
This method of transacting doesn’t require a third party to be involved when you send, receive or transact with your money. The blockchain is secure and transparent, making fraud near impossible.
Further reading: Guide to crypto self-custody.
Janine Grainger – Co-founder and CEO, Easy Crypto
With that being said, say you’ve bought some crypto online using an exchange and you regularly log in using your secure password to check how much it’s worth (or even better, to ‘buy the dip’).
However, since the rise of crypto fraud, everyone around you is starting to talk about ‘self-custody’ and storing your crypto away from the platform you bought it from.
This article explains the basics of ‘self-custody’ in easy-to-understand wording. Find out what this is, why people are choosing it over regular (exchange) custody, and just how easy it is to take back (autonomous) control of your digital assets.
How it works – the nitty gritty
When you open a self-custody wallet, you receive two sets of ‘keys’.
Your ‘public key’ is your wallet address. This is an identifier for your account on the blockchain network and almost like an email address enables you to receive emails, this address allows you to receive money. To receive funds, you give someone this wallet address (your ‘public key’).
Your ‘private key’, on the other hand, is used to access your wallet and approve any access to or transactions of your digital money.
Think of this as the password for your email address. More importantly, only you have access to the ‘private key’ that corresponds to your ‘public key’.
This key is not backed up by a third party or stored anywhere else and gives you access to your funds around the clock instead of relying on a bank.
Important: It is imperative to back up your ‘private key’. Many people do this using a device that isn’t connected to the internet – otherwise known as ‘cold storage’ – such as a secure storage device. Other people choose to write this down and store it within a safe. Your ‘private key’ is your only access to your wallet, and if lost, you won’t be able to access your funds again.
Related: How do cryptocurrency wallets work?
Two “keys”, and I’m good to go? Is there a catch?
There’s really isn’t a catch! You don’t need specialised technical knowledge to use a self-custody wallet. It works a lot like a conventional investment or payment app – but with added security measures and is much, much faster than conventional banking (almost instant) thanks to blockchain technology.
Using your wallet, you can check your balance, view your transactions, invest in other assets on the blockchain and send and receive money. Moving your existing crypto assets to your wallet is easy too, requiring little more than your ‘public key’.
Related: What is blockchain technology?
It’s important not to be put off by the complex terminology that often surrounds self-custody.
At its core, this technology simplifies finance by giving you full control and ownership of your funds at all times. While it does require responsibility for your own wallet security, it’s fast becoming a necessary precaution in today’s crypto ecosystem.
Remember: just two ‘keys’…it really is a no brainer!
Disclaimer: Crypto is volatile, carries risk and the value can go up and down. Past performance is not an indicator of future returns. Please do your own research.
Further reading: Explore more topics on crypto security in our learning hub.
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Disclaimer: Information is current as at the date of publication. This is general information only and is not intended to be advice. Crypto is volatile, carries risk and the value can go up and down. Past performance is not an indicator of future returns. Please do your own research.
Last updated May 3, 2023