What is Self Custody

The way Bitcoin is engineered you don't need to trust anyone else to secure your Bitcoin.

An easy way to understand the concept of self custody is like this, let's say you have a gold coin worth alot of money (say $50,000 equivalent). How best will you safely secure this gold coin🤔. Will you trust someone else when you can personally store it securely?

The best way is to trust no one except your self to securely hold this coin. You could keep it in a safe in a hard to find location or something similar but you should ideally not trust someone to hold it more securely because there is no guarantee they will, you can only hope.

Folks have lost savings they had in banks that have collapsed, if banks which are in the business of securing funds have lost their customers money, how can anything else be trusted. With Bitcoin, it was engineered to be stored securely by the holder, this is what is referred to as self custody.

Bitcoin + Self Custody

There is a popular saying among Bitcoiners which is ‘Not your keys not your coins’ which means if you do not own your private keys, you do not own the Bitcoin.

The only secure way to truly own and protect your Bitcoin is through self-custody. Self-custody is the process of having to not trust anyone to hold your Bitcoin securely (not FTX or Patricia), with self-custody you are essentially your own bank in charge of securing your funds. Self-custody guarantees full control of your Bitcoin private keys.

Self-custody is a form of personal financial sovereignty, with self-custody there is no counter-party risk and all the responsibility lies on you to protect your Bitcoin wealth.

Conclusion

There are so many things that can go wrong when you trust anyone to hold your Bitcoin, exchanges can be hacked or frozen by the Government abruptly, owners of exchanges can decide to trade with users coins hoping for some gains. There's simply no telling what can happen once you trust and can't verify that your bitcoin is securely held.

Over the past decade, we have seen uncountable number of exchanges get hacked or even worse, those trusted to manage the coins mismanaging them (like Sam Bankman who used customers funds to buy real estate in Bahamas among many other wild things). There have even been cases where the owner(s) of an exchange allegedly faked their deaths to escape with users coins. Victims of exchange hacks have had to live with the regret of mistakenly trusting platforms with their Bitcoin.

Some users have been a bit lucky like MT Gox which was the first major crypto exchange hack back in 2014, the users got paid a small % of the coins they lost a decade later. In recent times, it has been proven that a lot of hacks are orchestrated by North Korea who have a sophisticated army of cyber criminals constantly trying to steal digital assets. This is a stark reminder that there are many dedicated to stealing digital assets on exchanges.

To conclude, every crypto exchange or app (centralised entity) is at high risk of losing their users coins, the only way to eliminate this counter-party risk is through self custody. You self-custody your Bitcoin by protecting your private keys. Always remember the sacrosanct rule 'Not your keys, not your coins' which means if you do not hold your keys in self-custody, you do not own your Bitcoin. To self custody essentially means to trust no one.

We dive deeper into what private keys are in the next chapter.