Self-custody

How does self-custody work?

You set up a self-custody wallet, such as an app on your phone or a hardware walletHardware walletA small device that keeps private keys offline and signs transactions inside the device, so the keys never reach your computer or phone.. The wallet creates a seed phraseSeed phraseA list of 12 or 24 words that backs up every key in your wallet, so whoever has the words can restore the wallet and take the crypto., which you write down and store. If you bought your crypto on an exchange, you then send it to the wallet addressWallet addressA string of letters and numbers you give out to receive crypto, much like a bank account number. of your new wallet.

Self-custody is like keeping cash in your own safe. No bank can close your account, but if you lose the key to the safe, nobody can open it.

Pros and cons

Pros:

• The crypto is entirely under your control.
• It doesn't depend on any company. If an exchange goes bankrupt, your wallet is unaffected.
• You can use the crypto directly, for example in apps on Ethereum.

Cons:

• If you lose your seed phrase, nobody can recover the crypto.
• If someone tricks you into revealing it, the crypto is gone and the transaction can't be reversed.
• You need to plan how your family can reach the crypto if something happens to you.

Many people use both: a CustodianCustodianA company that holds crypto and the keys to it on behalf of customers, such as a licensed crypto exchange. for buying and selling, and self-custody for what they plan to hold for a long time.