Guide to Crypto Self-Custody: Everything You Need to Know
After the collapse of FTX, we should start to develop habits that make us accountable for our own crypto wealth, and becoming accustomed to self-custody.
The collapse of one of the biggest exchanges in the crypto industry led to billions of dollars of lost value. The victims are the investors of the exchange token, and those who held crypto on the now defunct platform.
The collapse also impacted the broader crypto market, as investors of other coins and tokens panic sold and were left feeling less confident.
At first, it can be easy to blame crypto itself. Nevertheless, it’s rather pointless to blame a piece of technology. It’s like claiming that credit cards can hurt you financially because you could overspend on things you couldn’t otherwise afford at the moment.
The harsh truth is that while the exchange has the biggest fault, the putting too much trust on the service was on the investors themselves.
- Self-custody refers to storing your crypto independently using a non-custodial crypto wallet, as opposed to a custodial crypto wallet often associated with centralised exchanges.
- Blockchain and decentralised finance challenges us to be independent and gain complete control over our assets.
- Being your own crypto custodian puts the trust in yourself rather than relying and/or putting dependency on third parties.
Crypto was designed to be simple and secure
For all intents and purposes, crypto is simply a tool that enables us to own digital assets without relying on trusted entities.
It is, after all, digital cash – and what do we do with cash?
We keep them safely in our wallet.
Unfortunately, many crypto investors do not store crypto in the way they were designed to be stored. It is true that the concept of decentralised finance is still foreign to many.
The lack of understanding of crypto assets, the lack of confidence in using crypto wallets, or the unfamiliarity of using DeFi services, are some of the reasons why many people remain to keep their assets in centralised exchanges.
Keeping your crypto assets in a centralised exchange means that they act as the custodian of your assets, trusting them to safely store your assets, similar in some ways to a traditional bank.
This means that your assets are subject to the platform’s policies and may be used to fund and/or facilitate other services on their platform. And as we prefaced above, this carries the potential risk of dependency on the platform itself.
Did you know: The method of storing your crypto using a wallet provided by a centralised exchange is known as custodial storage, using a custodial crypto wallet.
What is DeFi? Read our guide on decentralised finance.
Of course, there is also the issue with low regulatory standards set upon centralised exchanges. For example, this allowed them to promote interest-bearing accounts such as in crypto lending and staking services, but without the full protection of regulators.
Crypto adoption demands new habits
The banking industry has existed for a long time. We’ve become accustomed to relying on a trusted third-party to keep our money safe.
We relied on using short PINs to unlock our debit cards, but in case we forget the PIN or lose the card, we could simply head over to the bank — they’ll recognise our government-issued ID.
When Web 2.0 became mainstream, most Internet users had at least a Google account or a Facebook account. These two tech giants back up our access to services — even premium ones which we paid for with real money. We had now placed our trust in billion-dollar businesses.
Granted, we still need to remember the few passwords that unlock almost everything for us. If we lose them, no government-issued ID can help us recover the accounts. Nevertheless, it’s one step closer to self-custody.
With the arrival of decentralised finance technology, the next challenge for us is to gain complete control over our assets. We must learn to become completely independent from trusted parties.
This involves keeping our seed phrases / recovery phrases safe. This is the only piece of information that backs up our crypto wallets.
We cannot change them, and nothing else backs it up. It’s also not wise to delegate that responsibility to a trusted third party — if we already know how.
Learn more: Create secure and memorable passwords the easy way.
Why now is a good time to self-custody your crypto assets
There are a few reasons why now is a good time to self-custody your crypto assets. Below are some benefits of taking custody of your own crypto assets.
Self-custody is free
First of all, self-custody is free. It has always been free to set up self-custody (non-custodial) wallets, and will always be. We can set up as many crypto wallets as we want, and it won’t cost us anything.
Did you know: crypto wallets can be classified into either hot or cold depending on their storage methods.
- Hot wallets store your crypto in a digital wallet that requires an active internet connection to access.
- Cold wallets store your crypto in a secure offline environment using a physical authentication device.
In most crypto networks, transferring crypto from one wallet to another costs a small fee. While the fees in dollar terms change, depending on network activity and the market price of tokens, you’d be paying a flat fee for any amount of crypto you transfer.
At the current market condition (as of December 2022), there is not as much activity on the network as there was during the bull market condition. This means the network fees are at their lowest this past 12 months.
Integration with crypto ecosystem
Non-custodial hot wallets such as Metamask and Trust Wallet have deep integration with services in the crypto ecosystem, such as NFT marketplaces, decentralised apps (Dapps), Web3 apps, and more. OpenSea and Rarible for example have built-in integrations with many self-custody wallets.
What you can do after this
You can start by checking to see how much money in crypto you are currently storing in centralised exchanges.
If you have never created a wallet before, start by downloading a legitimate wallet app on your phone or browser extension.
If you’re on the search for a self-custody wallet, the Easy Crypto Wallet is our very own, locally designed self-custody hot wallet that is built to simplify the crypto experience for all crypto users.
Easy Crypto Wallet features:
- The Easy Crypto Wallet is a self-custody wallet with recovery features and encrypted cloud-based backups.
- Features the latest MPC (Multi-Party Computation) signing for authenticating secure transactions.
- Create multiple addresses and accounts in one simple app to customise the wallet to your needs and improve on-chain privacy.
The EC Wallet is combines the autonomy of using a self-custody wallet, whilst also incorporating the protection, security, and privacy of cold wallets – making it the best of both worlds.
Available on both iOS and Android devices. Download the Easy Crypto Wallet today!
Next, consider how much crypto you are comfortable moving off centralised exchanges. Do a test transfer, and save the wallet addresses in your address book.
Buy directly from retail brokers
Tired of buying from exchanges and having to transfer your crypto to your wallet? Try buying from a retail broker like Easy Crypto.
Easy Crypto is not an exchange. We’re more like a money changer. You transfer to us fiat money, and immediately, your crypto is on its way to your wallet. We don’t hold user funds, and we never do.
That’s because we know our place — we are not a bank.
We are simply your friendly crypto broker! 🙂
Further reading: Explore our learning hub at Easy Crypto to learn all thing crypto.
Stay curious and informed
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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 January 24, 2024