Self-custody means being the sole owner of your funds and maintaining control of your private keys
– Custodial services control your assets and conduct transactions on your behalf, a convenient option for some crypto users, especially new and inexperienced ones
Self-custody of your crypto provides benefits such as control of your private keys, elimination of counterparty risk, providing more secure storage options, greater privacy, increased flexibility and higher payment success rates.
– To start self-custody of your crypto, create a self-custody wallet with a provider like BitPay and initiate a transfer from your custodial account to your new self-custody wallet address
Choosing between a self-custody wallet and a custodial service is an important consideration when it comes to managing your cryptocurrency. While custodial services provide convenience and low barriers to entry, self-custody provides complete control and ownership of your funds. In this article, we will explore the concept of self-custody, its benefits, and how you can go into self-custody to take charge of your crypto assets.
Custodial Services vs. Self Custody
In traditional finance, a custodian is an institution that holds funds on behalf of an individual in order to safeguard those funds. The same concept applies to custodial wallet providers in crypto. However, instead of keeping your funds in a vault, your crypto assets are kept in a centralized wallet controlled by the provider. While you have access to your assets through your custodial account, all transactions are enabled by the custody service on your behalf.
Alternatively, with self-custody, you are the sole owner of your funds with 100% control. With this control comes the responsibility of protecting your assets. Custodial services offer convenience and low barriers to entry for crypto newcomers, a compromise many are willing to take. But as crypto users become savvy and invest in crypto, many are opting to abandon their custodial accounts for self-custody wallets.
Benefits of Self Custody
While some may prefer the convenience of custodial crypto services, there are clear benefits that are in line with the core principles of cryptocurrency – decentralization, being your own bank, and freedom.
control of your keys
“Your keys, your crypto” is the most common phrase among self-custody crypto users, and for good reason. When you use a self-custody service, you are never in control of the private keys of the wallet where your funds are held. The importance of private keys is clear: whoever has access to your keys has access to your crypto. Therefore, without them, you are never really in control of your crypto. Alternatively, when you use a self-custody solution, such as the Bitpay wallet, you are the only one who has access to your private keys.
Remember, BitPay will never contact you for your seed phrase or private key, and neither will any other legitimate crypto exchange or wallet provider. If someone asks you for your seed phrase, it is very likely that they are scamming you. Stay up to date with crypto security best practices to ensure the safety of your assets.
no counterparty risk
With any centrally controlled asset comes counterparty risk. Cryptocurrencies have always been volatile, but the events of Mt. Gox (2014) and FTX (2022) proved that risk can come in many different forms. Hacks, government shutdowns, and money laundering are all possibilities when you allow a custodial service to manage your crypto.
Take control of your crypto
More Secure Storage Options
In most cases, the only storage option offered by custodial services is a web wallet or mobile app. Traditional login credentials like email and password are the only thing standing between your crypto and the unauthorized user. Alternatively, when you self-custody crypto you have a number of options on the different types of crypto wallets you can use: hot or cold, desktop or mobile, hardware or software, single or multisignature – you call it Might as well simplify to the max and use one. paper wallet.
Most centralized exchanges and custodial services require you to verify your identity. With self-custody storage, you can use crypto without sharing your personal information. Remember, even though your self-custody wallet doesn’t always require you to verify your identity, a core tenet of blockchain is transparency. Anyone can follow the transaction history of any wallet address using a simple blockchain explorer.
Track and manage funds from any self-custody wallet
When you self-custody your crypto, you are giving yourself more flexibility in how you manage and track your assets. Your funds don’t actually “live” in your Wallet. Instead, a wallet is a device used to access funds on the blockchain. This means that you can control your crypto independently from any self-custody wallet application, giving you the freedom to try multiple wallets or test new providers.
Once your crypto assets are under the control of a custodial service, you will be forced to use its one-size-fits-all solution unless you actually move your funds to a different address.
high payout success rate
Paying With Crypto? Internal Bitpay statistics show that self-custody wallets have a higher success rate when making crypto payments.
How to Transfer Crypto from a Custodial Exchange to a Self-Custody Wallet
Want to start self-custodying your crypto? The process is free and easy. Kick things off by following these simple steps.
Step 1: Create a Self-Custody Wallet
Download Bitpay Wallet for free. It is available on mobile, tablet and desktop devices on Android, iOS, Mac, Windows and Linux operating systems. Once you have the app, generate a key with the wallet for the cryptocurrency you want to store.
Step 2: Record your new wallet address (or addresses)
You need to know the address of your wallet. In the Bitpay Wallet app, you can find this by selecting “My Keys” on the home screen, tapping your wallet, tapping the three dots in the top right corner, and finally selecting “Share Address.” From here you can write down your wallet address or copy it to your clipboard for the next steps.
Step 3: Initiate transfer from your custodial account
In most cases, transferring assets from a custodial service like Coinbase to a self-custody wallet like Bitpay is as easy as sending crypto from one address to another. With your new self-custody wallet addresses, log in to your custodial account. Select the Send to your Custodial Account option. Select the asset you want to transfer. Enter your new self-custody address (the one we created just a few steps ago). Now enter the amount of cryptocurrency you want to transfer. Review the transaction details and confirm sending the payment.
These steps may vary depending on your custody service. Review the steps below for popular custody services.
Self-custody Device: It’s always a good idea to send a small amount of crypto before transferring a large amount to a new wallet to make sure you have the correct address. Remember: Once the transaction is done, it cannot be reversed
Step 4: Enjoy the new control of the self-custody wallet
Once the transaction is complete, you will see your transferred crypto in the “My Keys” section of the Bitpay app. While self-custody means that there is no third party between you and your crypto, you should still take extreme care to keep your crypto safe, especially with regard to your wallet’s recovery phrase. To protect your funds from hackers and thieves, store your recovery phrase in a safe and secure location.
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