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Self Custody

Self custody is the act of personally managing and holding your own digital assets, such as cryptocurrencies, without relying on a third party like a bank or exchange. It gives users complete control and ownership of their assets through the use of private keys.

What is Self Custody?


Self custody is the practice of managing and securing your own digital assets, such as cryptocurrencies, without the involvement of a third-party custodian like an exchange or bank. In the world of blockchain and digital finance, self custody means taking responsibility for the safekeeping of your private keys, which are usuallu just a series of chatcters of words to grant you access to your crypto assets. By holding your own private keys, you have complete control and ownership over your funds.


The concept of self custody stands in stark contrast to the traditional financial system, where banks and financial institutions control and manage users' money on their behalf. In the case of cryptocurrencies, when you store your assets on a centralized exchange, you are entrusting that exchange with your private keys, meaning they ultimately have control over your funds. This centralization can expose you to risks like exchange hacks, regulatory seizure, or mismanagement.


Self custody allows individuals to be their own bank, retaining direct access to their assets at all times. To self-custody, users can utilize hardware wallets (physical devices that store private keys offline), software wallets (applications installed on a computer or smartphone), or paper wallets (physically written private keys). By choosing self custody, users protect themselves from potential vulnerabilities associated with centralized exchanges and have greater control over their financial privacy.


Self custody might seem intimidating at first, but it's actually quite simple. Once you take the first step—writing down a set of 12-24 words (your recovery phrase) with a small amount of funds—you'll wonder why you didn’t do it sooner.


To use self custody, you need to securely store your private keys and backup phrases. Yes, losing access to these words can mean losing your assets forever, but it’s no different from keeping valuables like jewelry safe. It requires care, but it’s not as hard as it sounds.

You just need to learn a few basic security measures to keep your private keys safe. Once you understand the process, it becomes easy. 

You can use metallic backup devices or store your recovery phrase in a safe place, such as a safety deposit box. There are also options like multi-signature wallets and Shamir sharing, which allow you to split your recovery phrase among diffeente locations or with highly trusted people, making the process more secure.


In the broader context of decentralized finance (DeFi) and the ethos of Web3, self custody is seen as a fundamental principle. It embodies the values of decentralization, personal freedom, and financial sovereignty, enabling individuals to manage their wealth without reliance on intermediaries.


Think of the money in your bank account as being held in a multi-signature wallet where you, the bank, and the government each hold a key. To access your funds, you need the bank's cooperation—similar to needing multiple signatures to authorize a transaction from a multi-sig wallet. You don't have the admin key or full control, and you can't make decisions about your money without permission from the other parties involved.


If the bank decides to freeze your account or if the government steps in with an order, they can prevent you from accessing your funds. Your ability to access and use your money can be restricted at any time, depending on their policies or external circumstances.


There have been many instances in history where this freedom has been taken away. For example, during economic crises, banks have restricted withdrawals, governments have imposed capital controls, or frozen citizens' accounts altogether. This highlights the fact that while you may think of the money in your bank as yours, in reality, you are trusting multiple parties to allow you access to it, and that trust can be revoked at any time.


Keywords:
self-custody digital-assets private-keys crypto-security hardware-wallet software-wallet financial-sovereignty self-custody-crypto decentralized-finance

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