What is self-custody in cryptocurrencies and why should you consider it?

If you don’t have your keys, you don’t have control. That’s as simple and as real as it gets. In the world of cryptocurrencies, we tend to think our savings are safe just because we see them in an application, but the reality is, if that application decides to close or block your access, you are left out. The good news is that there is a way to be the true sole owner of your money, and it’s called self-custody.

Don’t worry if it sounds complicated, our goal is for you to understand it. In this guide, we will explain what it is exactly, why it is the most important step you can take to protect your financial future and, most importantly, how to do it without complications. We want you to sleep peacefully knowing that no one, except you, holds the key to your digital safe.

Your crypto, your control: What is self-custody and why you need your own keys

Simply put, self-custody refers to the practice of maintaining direct control over your crypto assets, without depending on banks, exchanges, or other external custodians. It’s basically like having cash under your mattress or in your own wallet, instead of having it deposited in a bank account. If the bank closes, your money stays with you because you are the one who has the only physical key to the safe.

For this system to work, the crypto world uses two tools: the public key and the private key.

• The public keyis like your account number or your house address, you can share it with anyone so they can send you money.
• The private key, on the other hand, is the real key that opens that safe.

Whether you have 10 BTC or just 100,000 sats, only you can authorize transactions, because only you possess that secret key. Without intermediaries giving the go-ahead, you are the one who decides when and how to move your value.

In short, only you possess the private keys that control your funds. If you don’t have the keys, you are not truly the owner of your assets. This philosophy is frequently summarized in the famous crypto phrase: “If you don’t have your keys, you don’t have control.”

Now, the Office of Investor Education and Advocacy of the U.S. Securities and Exchange Commission has published a new Investor Bulletin that openly explains and legitimizes cryptocurrency self-custody. “With self-custody, you control your crypto assets and are responsible for managing the private keys of any of your wallets. With self-custody, you have complete control over access to the private keys of your crypto assets.”

Private keys, public keys, and addresses

To understand how money moves in the crypto world without banks involved, imagine you have a smart mailbox at your front door. This is how these three concepts work:

• Public key/mailbox lock:It functions as your wallet address, similar to a bank account number. Anyone can send cryptocurrencies to this address. Anyone can use it to “seal” an envelope and put it in your mailbox, but once the envelope falls inside, that lock is no longer useful for reopening it.
• Address:It is a shortened version of your public key and is what you share without fear when someone says: “give me your address to pay you.”
• Private key/physical key to your mailbox: It acts as a master password that allows you to authorize the transfer of funds. If you lose or expose this key, you lose control or ownership of your coins, possibly irreversibly. If someone asks you for your private key, it’s as if they were asking for the key to your house; if you give it to them, you are handing over total control of everything inside.

Very important, here is the golden rule: the private key is NEVER SHARED. If you entrust your private keys to a third party, you are actually granting them total control over your funds. As Andreas Antonopoulos famously summarized: “Your keys, your Bitcoin. Not your keys, not your Bitcoin.”

Self-custody and blockchain: digital ownership and verifiability

The concept of a self-custody crypto wallet embodies the fundamental principles of blockchain technology, providing true digital ownership. This aligns with the decentralized nature of blockchain networks, where no entity has authority over users’ funds.

What does it mean to “be the owner” in this world? Essentially, digital ownership is your ability to sign. Imagine that every movement of your cryptocurrencies requires an unforgeable autograph signature. Thanks to self-custody, you are the only one holding the pen, your private key. If you don’t sign, the funds don’t move; it’s that simple. No matter what a third party says, if there’s no signature, there’s no transaction.

Indeed, self-custody on blockchain gives you total control over your digital assets by managing your private keys, without intermediaries, while blockchain provides an immutable and verifiable record.

Why are so many people looking at self-custody now?

People are looking at self-custody now due to the desire for absolute control over their funds, protecting it from potential hacks, data breaches, exchange bankruptcies, and even regulatory problems. Thus responding to the growing distrust in centralized systems, consolidating the power of money in individual hands.

Let’s remember, several major exchange collapses, such as the case of FTX, which led to significant loss of funds by users. Although centralized platforms have improved their security and insurance coverage, the risk remains.

Sovereignty and privacy: Total control of your money and your data

Having financial sovereignty is not about grand promises, but about something as practical as freedom of movement. When you use self-custody, you stop asking “permission” from intermediaries to use your savings, you no longer depend on whether a platform is under maintenance or if a bank decides to block your transfers on a weekend You decide and you manage!

Furthermore, this autonomy goes hand in hand with greater financial privacy, an essential tool to reduce your exposure to risks. By managing your own keys, you avoid leaving an unnecessary trail of personal data on third-party servers that could be hacked.

In short, choosing self-custody is closing the curtain on your financial life. By reducing the amount of information you share and removing usage barriers, you make your money truly yours, both in the ability to spend it and in the security that no one else has access to your history or your identity without your consent.

Benefits of self-custody

Choosing self-custody of your crypto assets provides several significant advantages:

• Total control:You are the only one with authority over your assets. Only you can authorize transactions and access the funds. It is essential to understand that self-custody is a “complete package.” Security is not something someone does for you, it is something you decide to do for yourself to ensure your financial freedom is permanent.
• Security: Your funds are not exposed to the vulnerabilities of centralized entities.
• Privacy: You do not need to share your personal information with an external custodian, reducing the risk of data leaks.
• Availability: Access your funds 24/7, anywhere in the world.
• Censorship resistance: Your funds are not subject to arbitrary freezes or seizures.
• Reduced fees: By avoiding intermediaries, users often avoid unnecessary fees.
• Decentralization: Self-custody wallets align with the decentralized spirit of cryptocurrencies. By using one, you participate in a system where power is distributed and financial autonomy is a priority.

Self-custody vs traditional custody

What is custody?

In a nutshell, cryptocurrency custody means securing the private key that proves you own the funds in your wallet. Choosing how to do this is an important decision that doesn’t have a single valid answer, as your preferences may change over time or as your portfolio grows. What works best for a beginner is surely not enough for an expert, and that’s okay.

And, more importantly, many users opt for a mixed model to maximize their security: they keep small balances on platforms for quick access, while protecting their larger savings in offline self-custody wallets. This diversification is not only smart, but it provides an extra level of protection against the potential failures of any individual method, allowing you to get the best of both worlds.

Advantages and disadvantages

Hybrid model?

Particularly, most experienced users apply a strategy based on common sense: the division between “safe” and “pocket”. This approach allows you to enjoy the unbreakable security of self-custody without giving up the agility offered by traditional custody platforms for daily use.

• The Main Fund (safe):This is where you keep your long-term savings or significant amounts. Ideally, use a self-custody wallet. It is your store of value, protected by you, where security is the absolute priority and fund movement is infrequent.
• Money for daily use (pocket): These are the small amounts you use to trade, do trading, or make quick payments. This capital can live on an exchange or a mobile wallet with delegated custody. While you sacrifice some control, you gain the necessary speed to take advantage of market opportunities or pay for services instantly.

The key is planning, a common mistake is letting the “pocket” grow too big out of laziness or comfort, the golden rule is to periodically move the surplus to your self-custody “safe”. By diversifying your methods, you not only optimize your operations, but you also reduce the impact in case either of the two systems encounters a problem.

Types of self-custody wallets

Storing your digital assets is an essential part of your journey in the crypto world, and self-custody wallets are gaining more and more prominence.

In essence, allowing users to assume full ownership of their assets. There are several types of self-custody wallets, each with its own level of security, ease of use, and functionality. The most important thing when choosing a wallet is to evaluate what your real needs are.

Software wallets (Hot wallets)

They are applications that you install on your computer or mobile phone. They offer a good balance between convenience and security, although they are more vulnerable than cold wallets since the keys are on a device connected to the Internet. The most popular examples include Bitnovo, MetaMask, and Trust Wallet.

• Advantages:Easy to use for daily transactions.
• Disadvantages: Vulnerable to malware, viruses, and phishing attacks if your device is not secure.
• Ideal use: Appropriate for moderate amounts of cryptocurrencies and for interacting with decentralized applications (dApps). They require you to keep your device and software updated and virus-free.

Hardware wallets (Cold wallets)

They are physical devices designed to securely store your private keys away from the Internet. These devices are often called Cold wallets because they are not connected to the Internet, making them resistant to hacks or malware attacks.

Unlike the previous one, these physical devices keep your “key off the internet” at all times. They are the gold standard for security because transactions are signed inside the device, never exposing your keys to the digital world. Popular examples include Ledger, Trezor, or Yoseyomo.

• Advantages:The keys never touch the Internet, making them immune to remote hacks. They are resistant to computer viruses. They are the safest option for large amounts and long-term savings.
• Disadvantages: They have an acquisition cost (between €50 and €200) and a slightly steeper learning curve, as they require connecting the physical device for each operation.
• Use: Ideal for “hodlers” who want maximum security for their funds. You make transactions by connecting the device to your computer, confirming on the device itself.

Paper and homemade “cold storage”

A paper wallet is literally a piece of paper with your public and private keys printed on it. Although in the early days of Bitcoin it was a popular self-custody option for being free, today it is considered a risky method due to the fragility of the medium and the dangers during its creation.

• Advantages:Zero cost (you only need paper and ink). Completely offline.
• Disadvantages: Easy to lose, damage, or accidentally destroy by water, fire, or simply the passage of time. Furthermore, there is the risk when generating the keys (using insecure software or a printer connected to the Internet).
• Use: Not recommended for most users for significant amounts. It is more useful as an educational tool to understand private keys, or as a temporary backup for extreme emergencies.

Multisig for advanced security

Multisig (multiple signature) security technology is a type of security for wallets that require 2 or more private keys to make a transfer of your cryptocurrencies. This technology offers greater security to protect them.

Although they offer solid security, they also present certain complexities. All participants must carefully back up their private keys and follow secure key management practices. If the required number of signers cannot be reached (due to loss of keys or disagreement among the parties), the funds can become inaccessible.

How to choose your self-custody wallet

There is no absolute “best wallet,” but rather the one that best suits your needs, capital, and experience level. To find your ideal option, review this checklist and analyze your personal situation:

• What amount are you going to store?
  • If it’s a small amount for daily use, a software wallet is sufficient.
  • If it’s your long-term savings or significant amounts, a hardware wallet is mandatory.
• What level of support do you need?
  • If you are terrified of losing access, consider a hybrid or custody model for a portion of your funds.
  • If you want total independence, prepare for pure self-custody and the order it entails.
• What is your frequency of use?
  • Do you operate daily? Look for a hot wallet for its agility.
  • Do you just buy and hold (HODL)? Prioritize a cold wallet.
• Do you seek privacy or compliance?
  • If you value anonymity, choose wallets that do not require registration (KYC).
  • If you prefer to declare your movements easily, some custody platforms facilitate tax reports.
• On which devices are you comfortable?
  • Make sure the wallet is compatible with your operating system (iOS, Android, Windows) and that its interface is intuitive to you.

Remember: Start with what you feel comfortable with today and scale up your security as your confidence and portfolio grow.

5 questions before choosing

1. Is a self-custody wallet safe?
   Yes, in theory they are safer because the user is the only one who has access to their private keys.
2. Should I use a self-custody wallet?
   Ideally, use what you feel comfortable with. However, in general, it is considered a better and safer option.
3. What type of cryptocurrency wallet do you want to use?
   You can use cold or hot wallets to store your crypto assets. Carefully consider your convenience and security needs when choosing the type of cryptocurrency wallet that best suits your needs.
4. What happens if the custodian goes bankrupt?
   Find out if the custodian offers insurance against loss or theft of crypto assets and make sure you understand its terms and conditions.
5. What happens if I lose my device but keep my “seed phrase”?
   Nothing serious happens. You can buy a new device or use another compatible application and restore all your funds using those words. The cryptocurrencies are not “inside” the device, but on the blockchain; the device is just the key.

Don’t feel pressured to be an expert from day one. Start simple with a small amount in a wallet you find comfortable, familiarize yourself with the processes, and as you gain confidence and your capital grows, level up to more robust solutions.

Warning signs

In the crypto world, your best antivirus is your common sense. Below are the critical warning signs that should prompt an immediate cessation of any interaction:

• Identity spoofing (Clone Apps):Before performing any installation, always verify the official source, the number of downloads, and the developer.
• Links via direct message (DM): No real technical support from any wallet will write to you privately on Telegram, Discord, or X to “help you sync your account.”
• Seed Phrase request: If a website or application asks for your 12 or 24 words to “validate your wallet” or “give you a prize,” run, it is an attempted theft.
• Guaranteed yield offers: If someone promises you that you will double your money in a week without risk, be suspicious. In crypto, there are no miracles, only technology and the market.
• Urgent updates: Be wary of emails saying “Your account will be blocked in 24h if you don’t click here.” Scammers love using urgency so you don’t think.

Setup and first steps

The setup of a self-custody wallet depends on the type of wallet you are using. Below you will find a simplified guide to set them up:

Hardware wallet setup

1. Avoid buying second-hand hardware wallets to avoid tampering.
2. When you turn on your hardware wallet for the first time, it will ask you to create a PIN code.
3. Generate your seed phrase:The device will give you a seed phrase of 12 or 24 words. This is the most critical part: write it down and store it in a safe place. This seed phrase is your backup in case the device is lost or damaged.
4. Install complementary software:Some hardware wallets need complementary applications to manage your assets. Connect your wallet, follow the instructions, and you’re done!

Software wallet setup

1. Download the application:Choose a reliable wallet application from the official app stores.
2. Create a new wallet:The application will guide you through the process of creating a new wallet and generating a seed phrase.
3. Back up your seed phrase:Just like with hardware wallets, write down your seed phrase and store it securely Do not store it digitally!
4. Enable security features:Set up a strong password and, if available, enable two-factor authentication (2FA) for added security.

Paper Wallet setup

1. Disconnect from the Internet and use an open-source tool to generate your keys.
2. Print the wallet:Print your public and private keys and store them securely.
3. Store the paper:Store it in a waterproof, fireproof, and secure place. Since it is completely offline, it is immune to online attacks, but extremely vulnerable if lost or damaged.

Create a wallet and save the seed phrase (seed) correctly

The most important thing when choosing a wallet is to evaluate what your real needs are. There are different types depending on what you are looking for. Make sure it has two-factor authentication (2FA), that it shows compatibility with the networks you are going to use. Clearly, evaluate the reputation of the wallet, as this speaks volumes about its reliability. For its part, to guarantee the security of your funds, it is essential to follow some recommended practices:

• Make several physical copies of your seed phrase and store them in secure locations. Avoid digital storage to reduce the risk of attacks.
• Update the software periodically. If you are using a software wallet, make sure to keep the wallet software and your operating system updated to avoid vulnerabilities.
• Use strong passwords and 2FA. For greater protection, use strong and unique passwords for your wallets and enable two-factor authentication wherever possible.
• Be alert to phishing attacks. Phishing is a common way hackers gain access to wallets. Never click on suspicious links or provide your private keys or seed phrases online.

For example of the latter, we have the Ronin Network Attack (2022): A group of North Korean hackers infiltrated the Axie Infinity network, stealing ~$615 million in ETH and USDC by compromising validator nodes.

Best practices to avoid phishing scams

• Use a hardware wallet to store important funds.
• Always verify the official URLs and communication channels.
• Regularly update your devices and your wallet softwareto fix vulnerabilities.
• Never share your private key or recovery phrase with anyone, under any circumstances. Support staff or legitimate applications will never ask you for it.
• Delay responses to urgent requests; scammers often create a false sense of urgency to provoke errors.

Risks and responsibilities of self-custody, the part nobody wants to read… and should

Managing your own cryptocurrencies is, in essence, becoming your own bank, and that entails an unbreakable rule: more control always implies more responsibility. Being the sole owner of your private keys is liberating because no one can block your funds, but it also means there is no “customer service” to call if you make a mistake.

If you lose your seed phrase or share it carelessly, there is no reset password button to recover your money. Self-custody is not about scaring you, but about inviting you to be meticulous. It’s about swapping trust in a third party for trust in your own ability to be organized and protect your physical backup. In the end, the security of your assets is as strong as the care you put into safeguarding their keys.

Loss of keys / seed phrase

If you lose your private keys or your seed phrase, your funds will be lost forever. Unlike a bank, there is no customer service number to call for help. This makes proper key management vital.

To prevent this from happening, you must treat these words as the most valuable object in your estate. Here are three essential preventive measures:

1. Never store your seed phrase in photos, screenshots, cloud files, or notes on your phone.Even better, engrave it on a metal plate designed to withstand fire and floods.
2. Create at least two exact copiesand store them in different geographic locations. This protects you in case a localized disaster occurs at your home.
3. Before sending large amounts of money to a new wallet, delete it and reinstall itusing your backup of the seed words. If the funds appear, you will have verified that your backup works correctly and that you can trust it.

Human error

Most wallet losses are due to human errors, such as storing keys on easily compromised devices, using weak passwords, or falling for phishing attacks. Always be vigilant about security.

Hacking and theft

Online wallets, especially software wallets, are vulnerable to attacks if your computer or mobile device is compromised. Be sure to use strong security practices, such as keeping your operating system and software updated and enabling 2FA whenever possible.

Physical theft

Hardware and paper wallets can be stolen. If someone gains access to your physical wallet and the recovery details of your backup, they will be able to access your funds.

Defense suggestions

• Always set up a robust PIN on your hardware wallet.
• Never store the physical device in the same place as the recovery phrase.
• The best security system is anonymity.Avoid publicly commenting on the type of wallet you use or the amount of assets you custody.

Self-custody checklist

Save this list in your favorites and make sure to complete each step before considering your funds truly secure.

• Strategic choice:I have chosen my wallet based on my profile (software for low amounts/daily operations or hardware for long-term savings).
• Secure environment: I have set up my wallet on a clean and secure device, preferably using “airplane mode” during seed generation.
• Analog backup (Offline): I have handwritten my 12/24 words on paper or metal. I have 2 copies stored in different, secure physical locations.
• I have verified that there are NO photos, screenshots, emails, or notes in the cloud containing my seed phrase.
• Test transaction: Before moving all my capital, I sent a minimal amount, deleted the wallet, and restored it with my words to confirm the backup works.
• Anti-Phishing measures: I have saved the official websites of my wallets in “Favorites” and have activated 2FA (preferably via App or physical key) on my linked accounts.
• I have separated my funds: I use a “hot” wallet for daily spending and a “cold” wallet for my patrimonial savings.

Security is not a goal, but a habit. Review this checklist every time you decide to try a new tool or move significant amounts of assets.

Pocket dictionary: 7 terms to understand your security

In conclusion, understanding what self-custody in cryptocurrencies is and why you should consider it is the definitive step to go from being a spectator to a true owner of your wealth. Self-custody is not just a technical option, it is the ultimate expression of digital sovereignty: the ability to move, save, and protect your assets without asking anyone’s permission.

Although the path requires discipline and rigorous management of your keys, the reward is the peace of mind of knowing that your financial future depends exclusively on you. At the end of the day, technology gives you the power, but only you decide how to wield it.

As Ralph Waldo Emerson aptly said: “Self-trust is the first secret of success.”