What is self custody?

When your assets are stored on an exchange or custodial wallet, they aren't fully under your control because you’re trusting someone else to hold your keys.

If that company gets hacked, freezes withdrawals, or shuts down, your access to your funds can vanish in an instant.

Now, imagine a system where you hold the keys. No exchange, no middleman, no one who can block, freeze, or limit your access. In this system, you are the only one who controls your funds.

Welcome to the world of self-custody!

What is self-custody?

Self-custody is taking personal responsibility for managing and securing your assets.

It’s like being your own bank - having full control over your digital assets without relying on third parties like exchanges or custodial wallets.

While empowering, it also requires you to safeguard your assets yourself, because you are the only person who controls access to them.

Learn more in our podcast on self-custody:

Why is self-custody important?

The significance of self-custody becomes apparent when we look at real-world incidents.

Consider the Mt. Gox incident in 2014, one of the most infamous bitcoin exchange hacks, where users lost approximately 740,000 bitcoin. Similarly, the unexpected closure of the QuadrigaCX exchange led to a significant loss of customer assets.

More recently, the FTX exchange's bankruptcy left many users in financial limbo. All these examples underscore the risks associated with leaving your assets on exchanges and the importance of maintaining control of your own digital assets.

Key concepts in self-custody

Understanding self-custody involves grasping a few essential concepts:

• Private keys: These are your unique cryptographic codes that allow you to access and transact your bitcoin. It's vital to keep them secure because losing them equates to losing your assets

• Hardware wallet: This is your vault for storing assets. A hardware wallet, like Trezor, generates and stores your private keys offline, ensuring they're secure and under your control.

• Wallet backup & passphrase: Think of these as your safety nets. They're essential for recovering your assets if you lose access to your wallet or private keys.

• Transaction signing: This is your authorization process. When sending a transaction, you 'sign' it with your private key, proving you're the legitimate owner and initiating the transfer.

The role of Trezor in self-custody

A Trezor wallet facilitates self-custody by offering secure offline storage for your private keys. It provides a user-friendly interface for transaction signing, and it guides you through the process of creating wallet backups, adding an extra layer of security.

Benefits of self-custody

Self-custody offers significant advantages:

• Security and Control: You have direct control over your assets, reducing risks related to hacking or third-party failures.

• Privacy: Transacting under self-custody allows you to maintain privacy as you don't need to disclose personal information to a third party.

• Freedom: Self-custody complements decentralization and individual financial sovereignty.

Understanding the risks

While self-custody empowers you, it also requires careful management of your private keys and wallet backups.

If you lose them, there is no recovery service to help you. It's essential to educate yourself, stay vigilant, and adopt security best practices.

Self-custody provides personal freedom in managing your own assets. It's a powerful tool that aligns with the spirit of decentralization, central to bitcoin's philosophy.

While it comes with increased responsibility, solutions like Trezor make self-custody secure and accessible for everyone.