The idea of self-custody is as old as the hills. Whether it’s stuffing bank notes under a mattress or keeping gold bullion in a safe, it’s always given people equal amounts of fear and freedom. It’s only now though, with cryptocurrencies, that people can have secure and portable self-custody of their assets.
Self-custody is as integral to the ethos of crypto as decentralization and peer-to-peer transactions. These concepts give blockchain technology the ability to create a new kind of asset ownership that has never existed before.
As Deniz, our CEO says, “I believe that self-custody is a key tenet of cryptocurrency. Many of the catastrophes within crypto, as well as the legacy financial system, stemmed from the lack of true self-custody and absence of transparency.”
Prior to crypto the ability to own something relied upon a trusted intermediary. With property, for instance, ownership is only proven if someone has the title deeds and they correspond to a record held on a central register. If another country were to invade or a regime change occurred people could easily find themselves dispossessed of their land rights.
With digital ownership however, the only thing needed is to hold the keys to the wallet containing the assets, then you can access your wallet from anywhere in the world. As we saw during the Russian invasion of Ukraine, those individuals with crypto could flee the country and take their money with them.
Although you can self-custody fiat currency, to do so in a secure manner is usually quite difficult and expensive. In addition, taking large amounts of cash through an airport requires a customs declaration and may lead to all or part of it being confiscated.
Despite self-custody being an intrinsic part of crypto, many people are afraid of the potential downside and prefer to custody with centralized entities such as exchanges. Instead of trusting a cold wallet with their crypto they instead choose to trust someone they’ve never met. As we saw in the case of Sam Bankman-Fried, ex-CEO of FTX, this can have disastrous consequences.
When we rely on someone’s reputation that we are unable to independently verify we place ourselves at risk. Although self-custody can be a little confusing at times, recent events have demonstrated the need for everyone to learn this skill.
As Wilson, our COO says, “People are looking for a better way to achieve financial freedom. No matter how much money an individual has, if they are not able to access it then they don’t have real financial freedom. Cryptocurrencies and blockchains don’t operate on trust, thus having control over your own funds is an important value-add that is nearly impossible to obtain in the traditional finance world.”
Keeping your crypto safe involves more than just taking it off exchanges and putting it into a wallet, you have to secure that wallet to prevent it from being hacked. These days companies such as Ledger and Trezor provide simple solutions that anyone can use to help keep their wallets safe.
Wallets can be a little intimidating as can many other aspects of crypto in the beginning. This is why good design and education are so important as Simon, our CTO points out, “Implementing an easy-to-navigate UI in crypto wallets will help lower the barrier to entry. Improvements like account abstractions will assist in this goal. There are good options available now but I see that there is still more work to be done.”
Deniz concurs, “Educating crypto users and the general public on self-custody will be crucial for understanding a fundamental benefit of cryptocurrencies. This is something that is slowly starting to take place and is highlighted by the events at FTX.”