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Crypto Self-Custody Is Essential But Is Technical Knowledge Important?

Last Updated May 19, 2024 8:12 AM
Shraddha Sharma
Last Updated May 19, 2024 8:12 AM

Key Takeaways

  • Self-custody offers complete control over crypto assets but requires users to manage their security.
  • While self-custody demands technical knowledge, good solutions are becoming easier to use.
  • Self-custody aligns with the principles of Web3, emphasizing ownership and responsibility, says CEO of Savl.

James Toledano, Chief Operating Officer of the self-custodial wallet Savl, shared insights with CCN about the benefits and challenges of self-custody in managing digital assets. 

Emphasizing the alignment with cryptocurrency’s core principles, Toledano noted that self-custody provides users with complete control over their assets. However, he acknowledged that this approach requires more effort and technical knowledge, often leading users to deem it non-viable for those who are not tech-savvy. 

Impact of Crypto Crisis on Custody 

The crypto community promotes self-custody for its core principles since it gives users complete control over their private keys.

This control lets them manage their assets without third-party interference. This feature becomes all the more crucial if the crypto exchange faces a crisis. For instance, the bankruptcy of FTX impacted its users and the creditor base. 

James Toledano, Chief Operating Officer of the self-custodial wallet Savl, says, “We’re seeing an uptick in self-custody use in the wake of events like FTX and CZ’s sentencing,

“Self-custody centers around enhanced control, privacy, security, and accessibility,” Toledano added.

In addition, according to the executive, self-custody gives users more privacy because they share less personal information.

The CEO said, “From a security standpoint, self-custody assets are generally safer from large-scale security breaches that centralized platforms might face, given that the owner’s setup is robust.”

Recently, Rain, a Bahrain-based crypto exchange, was hacked, resulting in a loss of $15m. In May, Rain’s pro platform has reportedly experienced intermittent downtimes.

Toledano explained, “Having direct control over private keys ensures uninterrupted access to funds, regardless of the operational status of external services, and shields users from external crises such as liquidity issues on exchanges (think FTX and Terra).”

But, Toledano explains that self-custody requires more responsibility and technical knowledge.

He said, “Individuals are entirely responsible for the security and management of their private keys. Some self-custody solutions can be less user-friendly and may lack the streamlined experience provided by custodial services, making them less appealing to everyday users.”

Self-Custody Vs Custodial Services 

With self-custody, users control the private keys to their crypto. In contrast, custodial services could function like traditional banks.

Toledano explained, “With self-custody, you are the bank and the customer. The key difference is the focus of control and responsibility.” The CEO reiterated that users bear the full responsibility of securing their assets under self-custody. 

In contrast, Toledano explained, “With custodial services, the responsibility lies with the third-party custodian, but you also cede some control and autonomy over your assets. You can also end up paying significant fees for the privilege of using their platform!”

But with that, Toledano sees that custodial services provide convenience and institutional-grade security. However, they introduce counterparty risk and potential censorship or restrictions on assets, he added. 

Toledano emphasizes, “The whole underlying ethos of Web3 is ownership and so self-custody solutions are absolutely the most vital component of true ownership and responsibility.”

Recently, the US State of Oklahoma enacted a blockchain bill that allows for self-custody of digital assets. 

It states , “The bill stipulates that the government of Oklahoma cannot ban or restrict the use of digital assets for purchasing legal goods/services, or the self-custody of digital assets using a self-hosted wallet or a hardware wallet.”

The bill will take effect on November 1, 2024.

Enhancing Security With Self-Custody

Toledano explains that users have to follow several measures to safeguard their digital assets.

He states, “First and foremost, securely backing up your seed phrase—a sequence of 12-24 random words that can regenerate your private keys—is paramount.”

He recommends that users store this seed phrase offline in several safe places, like a fireproof safe or a bank safety deposit box, and avoid keeping it on digital devices to prevent theft. 

The CEO adds, “Prioritize strong passwords or passphrases for application access, ensuring they are unique and ideally consisting of a minimum of six numbers. Consider activating biometric security if available.”

Toledano advises that it’s important to regularly update your wallet software and phone operating system with the latest security patches to avoid vulnerabilities. He also recommends using a Virtual Private Network (VPN), avoiding public Wi-Fi, and being careful about sharing information related to your crypto holdings. 

He adds, “It’s essential to stay informed about the latest security threats, scams, and best practices in the cryptocurrency space, continuously educating yourself to mitigate risks.”

The CEO also recommends that ABD policy for asset protection. He explained, “Exercise caution when interacting with unfamiliar services or individuals, adhering to the principle of ABD—Always Be Diligent.”

Interestingly, Toledano says that self-custody can work for people who aren’t tech-savvy. However, they need to learn some basics and take responsibility for security, he added.

Toledano said, “Good self-custody solutions are actually pretty easy to navigate and use once you know the basics like what private keys are and how to find and securely store your seed phrase offline, for starters.”

The executive emphasizes that users must understand the importance of properly handling their seed phrases. If they lose or mishandle the 24 words that make up their seed phrase, they could permanently lose access to their funds with no way to recover them, he added. 

Toledano underlined, “It is advisable to always start with small amounts of investing while gaining experience and confidence. Of course, choosing a user-friendly wallet with an excellent UI makes life a lot easier.”

He believes that in the Web3 world, self-custody is the best method for long-term asset storage and security.

Toledano notes, “Newbies can always seek additional guidance from knowledgeable and trusted sources, online communities, or professional services if in doubt.”

Self-Custody Comes With Responsibility 

James Toledano, Chief Operating Officer of Savl, emphasized the critical role of self-custody in the crypto market. 

He highlighted that self-custody aligns with the core principles of control, security, and privacy. There are inherent challenges, such as the need for technical knowledge and increased personal responsibility. Despite these hurdles, Toledano advocates for self-custody as the best method for long-term asset storage.

However, users should gain a sufficient understanding of both the market and the wallet before diving deeply into the space.

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