In the realm of cryptocurrencies, self-custody refers to taking control of your private keys and/or seed phrase, rather than relying on third-party custodians such as centralized exchanges, banks, or financial institutions. Your private keys are secret codes that grant access to your crypto funds. Think of them as keys to the most secure vault in the world, and whoever holds the key can access the vault and everything in it. If this key is lost, no one can ever open the vault and whatever is in it is lost forever.
So why would anyone take on the responsibility of storing their private keys and live in fear that they might lose them one day? Is it not better to let an exchange or a bank store the crypto for me? Aren't banks super safe?
In a perfect world full of honest people and truly democratic governments who support and protect the rights and property of private citizens, cryptocurrencies would not have much use at all. Unfortunately, we do not live in a perfect world.
At their core, cryptocurrencies were created to protect individuals against irresponsible governments and powerful people who manipulate the financial system to their own benefit at the expense of the general population. A problem as old as time.
By trusting a third-party to store your crypto, you are trading the relative inconvenience of storing your own private keys for implicit trust that the third-party will never spend it, invest it without your permission, lie about having it in their possession, prevent you from spending it, or freeze it for any arbitrary reason. While these sound like extreme scenarios, they all happen in the crypto and traditional banking sectors on a regular basis.
There is nothing wrong with trusting reputable and transparent financial institutions. In fact, storing crypto with trusted third parties is probably the best option for many people. However, storing your own keys guarantees that no bad actor can access your funds under any circumstances, period.
The process of self-custody has a lot of room for improvement when it comes to user friendliness. However, with a moderate amount of care and commons sense, anyone can safely self-custody their digital assets and ensure they are 100% in control of their funds. Self-custody may not be for everyone, but for those who understand it and embrace it, it truly is a superpower.