Is "Not Your Keys Not Your Crypto" Still Relevant
If you have spent any time in the crypto space it is quite likely you have heard the expression “Not your keys not your crypto.”
Basically this just means if you aren’t taking self custody of your crypto by holding it directly in your own wallet, you don’t actually own any crypto. This means holding coins on exchanges like Coinbase, Kraken, Binance etc. or holding coins on interest platforms like BlockFi, Nexo or Celsius doesn’t mean you actually own any crypto, but just an I owe you note from the company.
While this is technically true, because if you don’t know the private key of the address the crypto is on you don’t officially own the crypto. The problem is that this attitude simplifies the variety of ways you can own crypto and get exposure to the assets to only 2 options: Self custody or don’t. This is actually the black or white logical fallacy and is a drastic oversimplification of the current crypto space and custody methods.
Many who make the argument the only safe way to hold crypto is through self custody cite the various hacks in the past of exchanges such as Mt.Gox. The problem with this is they are ignoring how vastly different the security of today’s institutions are and just how much of an improvement there is.
BlockFi, Coinbase and Gemini all hold plenty of coins in expertly managed cold storage to prevent hacks, and have the level of security expected from tech giants like Google and Microsoft built into their infrastructure. This is not suggesting there is no chance that an exchange or interest account such as these could be hacked, but it is saying the chances are drastically less than before.
We also need to take into account the fact that self custody is far far more likely to result in a loss of coins than holding with a trustworthy and well researched custody institution. The number one cause of crypto loss is user error.
Self custody leaves you open to phishing attacks, simple mistakes, or just simply not securing your passphrase well enough and losing it or someone finding it. You can eliminate all of these risks by holding with trustworthy institutions and remove almost all room for user error. Let’s look at some pros and cons of holding with an interest provider like BlockFi vs. self custody…
Pros and Cons of Holding with BlockFi or similar providers
Pros
- Very secure and trusted with millions of assets by large institutions
- Earn interest on your assets payed monthly
- Simple set up and user friendly interface
- Regular password and two factor authentication security, no chance of losing private key
Cons
-
If BlockFi goes insolvent or is hacked or some other extreme event occurs, you may lose your assets
-
You do not hold your private keys so you are one layer removed from your crypto
-
Cannot participate in Defi or transact with your coins as much, best for just holding long term
Pros and Cons of Self Custody
Pros
- You own your private keys and thus have 100% direct control of your assets
- Can participate in Defi and use your crypto actively
- Learn more about the space and how crypto works
Cons
- Potential to lose keys, make an error or get hacked and thus lose your assets
- More confusing and less user friendly to beginners
- Hardware wallets are most secure but are expensive
- Multiple wallets for different coins
So should you self custody?
The answer of course is personal to everyone. If you want 100% self sovereign control of your money and to “be your own bank” then self custody is a great option and fulfills that desire. On the other hand if you just want exposure to the asset class and don’t want to worry about getting hacked, phished or just simply losing your keys, then holding crypto in an interest account is likely the better move.
The question I would pose to the self custody maximalists is: if you were to get your parents or other family members who are not at all tech savvy into crypto, would you really suggest they begin with self custody?
The common argument saying yes to this question is that it will teach them about the space by forcing them to dive right in and learn how everything properly works. That may be true for some people, but the more likely outcome is they get too confused, don’t bother diving in and thus never get enough exposure to truly fall in love with the space. If you give them a simple to use and understand platform like BlockFi or Coinbase that will store their crypto for them in a way they are used to, (no private keys) they will then have a stake in the crypto ecosystem. This way they will check the prices, learn more about their coins and gradually explore deeper into the space. From there they may decide they would rather take self custody of their coins, but at least now they will be educated and know what to do and not to do.
So often you see posts from beginners who went straight into self custody and lost their keys, screwed up a transaction, or got hacked or phished and lost all their crypto. This puts a bad taste in their mouth and often results in people giving up on crypto or labeling it as a scam.
I am not saying self custody is a bad thing or an unsecure way to hold crypto, I am just saying the self custody maximalists who say everyone should self custody no matter their knowledge level may be wrong. Either way, people should research the risks of how they hold their crypto and be aware of the risk they are taking. If companies are in the space making this simpler and more secure for the average consumer, that’s great.
The beauty of crypto is that the most experienced and those seeking complete control will always be able to self custody as securely as we like. When it comes to newcomers, however, I try to recommend the strategies that are least likely to result in them losing money or losing interest in the space.
Anyways, that’s my two cents on the “not your keys, not your crypto” argument. I am sure people have strong opinions about this so feel free to reply and make your best argument for or against self custody!!
Posted Using LeoFinance Beta