How you store your crypto assets is important, and if you don’t do it properly, you could leave your investments vulnerable. Self-custody of cryptocurrencies and other digital assets simply refers to the process of managing crypto assets on your own, and is the only way to ensure complete control. But unfortunately, many people don’t have a complete understanding of self-custody crypto wallets.
While almost everyone in cryptocurrency is familiar with the importance of using a secure crypto wallet for storing Bitcoin or other digital coins or tokens, few understand the implications of self-custodial crypto wallets.
Self-custodial crypto wallets allow you to own your own private keys, giving you full control of your crypto assets.
But there’s still a lot of confusion about self-custody wallets. Most crypto-natives either take it too randomly and leave their currency on a centralized exchange, or they go down the rabbit hole with overly complicated methods that make it difficult to trade cryptocurrencies.
Here are some of the most common misconceptions about self-custody crypto wallets:
Wrong idea #1: Self-custody wallets are always complicated
false! Most self-custody crypto wallets have simple and intuitive interfaces that make it easy to safely store the coin in minutes. To get started with a self-custody wallet, all you have to do is download the wallet from a trusted source, protect your private keys, and back up your data. Next, you will receive a request to save your private keys in a mnemonic phrase, a paper wallet or a hardware wallet. This approach allows you to have a backup of your keys and wallet so you can restore it at any time.
There’s a learning curve, but it’s not much more complicated than setting up two-factor authentication or a new bank account.
Most people new to cryptography also believe that only crypto-savvy users should use self-custodial wallets. The truth, however, is that a self-custody wallet is one of the easiest and safest ways to store your crypto assets, especially if you’re new to encryption.
A lot of online resources make it easy for new crypto investors to catch up on how self-custody works. There are also many tutorials available that will teach you the basics of setting up and using a self-custody wallet to store your digital assets securely.
Novice crypto users can protect their assets from hacks on exchanges and DeFi projects with self-custodial crypto wallets.
Misconception #2: Self-custody wallets are only for long-term storage
While it’s true that self-custody provides security for long-term investment, it also allows you to use your cryptocurrency without ever having to transfer your coins to a third-party platform such as an exchange.
You can use a hardware wallet to connect to web wallets and peer-to-peer networks, allowing you to transact from the comfort of your wallet. So you don’t need to store all the security details of an exchange and expose digital assets to additional risks – you can do everything from your self-custody wallet.
You can even trade on a decentralized exchange with a self-custody wallet. With some platforms, such as Unstoppable Wallet, you can connect your wallet to different exchanges and blockchains, allowing you to quickly buy or sell crypto assets without needing third parties. You can even trade cryptocurrencies directly with other users on decentralized exchanges linked to your self-custody wallet.
Misconception #3: Self-custody wallets are only for Bitcoin, hardware wallets
no! Self-custody wallets are designed to support a variety of coins and tokens so you can store any digital asset in a self-custody wallet. This includes popular coins like Ethereum, Litecoin, and Cardano, as well as smaller altcoins that centralized exchanges may not support.
If done correctly, your coins will never be at risk of being hacked or stolen as long as you follow basic security protocols, such as keeping your private keys safe and backing up your data. Of course, it’s always important to do your research and make sure you’re using a reputable wallet provider before storing any digital assets.
Plus, you don’t necessarily need a hardware wallet to store your digital assets securely. The most popular self-custody crypto wallets allow you to store large sums of cryptocurrencies in their proprietary software wallets. The software wallet will then store the data in your wallet on your device (smartphone or laptop).
However, it is important to note that hardware wallets are the safest way of self-custody, as they allow you to keep your private keys offline and away from malicious actors. You also get a single device that you can control instead of multiple devices carrying your private keys.
Conclusion: Not your keys, not your cryptocurrency
The recent collapse of the FTX exchange reminded us of the importance of self-custody encryption when keeping our digital assets secure.
Self-custody wallets offer a variety of benefits, including enhanced security, control over private keys, and access to a range of coins and tokens that may not be available on centralized exchanges.
When the centralized exchange keeps your keys private, they retain ownership of your coins and can use your coins as they want. In the case of FTX, it is now revealed that the company used the depositor’s funds to cover its losses and trade for profit without depositors’ knowledge.
Using a self-custodial wallet, crypto users can take complete control of their funds and manage their digital assets with confidence.
There will probably always be a need for centralized crypto entities (for ramps and trading), but the vast majority of your cryptocurrencies should be stored on a self-custodial wallet.