Self-custody wallets have often been touted as a great way to keep your crypto safe, and for good reason. By taking your crypto off of centralized exchanges and holding your own private keys, you reduce the risk of hacks, scams, and theft. And instead of trusting another entity to protect your assets, you get to act as your own "bank," where you are in complete control of your assets. Self-custody isn't for everyone, though, and it comes with some real limitations. Here's what you need to take into account when weighing in wether or not to self-custody your crypto.
TL;DR
Self-custody can be hard: While there are many great self-custody solutions out there, the user interface and user experience aren't optimal yet. Until your grandmother can self-custody her crypto with ease, we've still got more work to do.
Once your funds are gone, they're gone: There is no insurance or guarantee that your funds are safe, and there is a risk of user error that could lead to the loss of your crypto — forever.
Crypto isn't a replacement for banks — yet: Self-custodied crypto may not be the answer to banking insolvencies, since crypto is highly entangled with the traditional finance system and remains volatile.
What is self-custody?
To self-custody your funds is to have complete control over your crypto assets rather than relying on a third-party to custody them. This means holding the private keys to your crypto in a self-custodial wallet, such as the OKX Wallet. When you self-custody your crypto assets, nobody has control over your crypto without your digitally signed permission, thus reducing the risk of losing your funds.
While self-custody is commonly known as the safest way to store your crypto, it's not the easiest solution for most people.
Why is self-custody so difficult?
If you're a crypto-native, you might be a self-custody wizard at this point. But for most of the general public, the concept of taking complete control of one's crypto is quite technically daunting.
While the OKX Wallet makes it easy to transfer your crypto to and from the OKX exchange, there's still a risk when it comes to transferring your funds. From accidentally copying the wrong address to choosing the wrong blockchain network, there are a number of risks associated with manually moving your funds.
Ultimately, self-custody is limited in accessibility due to: 1. Technical complexity: Self-custody requires a certain level of technical knowledge and expertise. Without the proper knowledge of public/private keys, addresses, and other concepts, you could risk losing your funds due to errors such as sending crypto to the wrong address. Even under the most basic self-custody solutions, your assets are completely dependent on a single point of user failure — keeping your seed-phrase safe. 2. Security risks: With self-custody wallets, you must secure your private keys in a safe and secure location and take precautions against online hacks and physical loss or damage. If your private keys are compromised or lost, you risk losing all your funds. It's imperative to take great care in how you store your seed phrases — you won't want to end up like the infamous man who was locked out of $220 million worth of Bitcoin thanks to one simple mistake. 3. Lack of regulatory protection: Self-custody lacks regulatory protection. Unlike custodial services, self-custody does not offer insurance or reimbursement in the event of theft. Additionally, users have no recourse in the event of lost or stolen funds.
So, although self-custody offers great benefits it isn't, at this stage, for everyone.
Can you really be your own bank?
It is commonly said that with bitcoin, a self-hosted node, and a self-custodied wallet, you can become your own bank. While this is often touted as a solution to the existing fractional-reserve banking system that risks fallouts and bank runs, can crypto really be the solution?
While the traditional banking system has its flaws, self-custodying your Bitcoin comes with a few as well:
In a traditional bank account, your assets are protected up to $250,000 under FDIC insurance. With crypto, you don't have any protection if you lose your funds.
Most cryptocurrencies still experience volatile price swings.
While crypto is permissionless, that doesn't mean everyone is willing to accept them for payments. In order for the average person to pay for everyday things, it's important to have access to the traditional banking system.
For those who can stomach the short-term volatility of cryptocurrencies and are technologically savvy, crypto gives them the option for long-term, secure asset storage. But for most people, there needs to be a better solution that allows people to easily, securely store and access their money.
Should I self-custody my crypto?
Both self-custody and third-party custody solutions come with risks. Ultimately, it's up to each individual to weigh the risks as explained above and decide what is best for them. As we work to usher in a better, safer financial system, crypto may or may not be a part of the solution — and we're working hard to ensure that it can be.
Today, billions of people around the world still remain unbanked. While crypto can help, self-custody methods and decentralized finance still have a long way to go until they can scale to support individuals, small businesses, big corporations, and even countries.
If you're thinking of starting your self-custody journey, we recommend exploring the OKX Wallet first. For first-time users, we've put together a comprehensive guide to help you get started.
NOTHING IN THIS ARTICLE IS A SOLICITATION TO BUY OR SELL DIGITAL ASSETS. OKX DOES NOT ENDORSE ANY PARTICULAR DIGITAL ASSET OR STRATEGY. DIGITAL ASSETS HOLDINGS INVOLVE A HIGH DEGREE OF RISK, CAN FLUCTUATE GREATLY ON ANY GIVEN DAY, AND MAY EVEN BECOME WORTHLESS. YOU SHOULD CAREFULLY CONSIDER WHETHER TRADING OR HOLDING DIGITAL CURRENCIES IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. OKX DOES NOT PROVIDE LEGAL, TAX, INVESTMENT, OR OTHER ADVICE. PLEASE CONSULT YOUR LEGAL/TAX/INVESTMENT PROFESSIONAL FOR QUESTIONS ABOUT YOUR SPECIFIC CIRCUMSTANCES.
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