The benefits of self-custody outweigh the risk of exchanges

[Smartvirus]

Would you rather prefer someone or some organisation to be in charge of your coin or money?
I guess not, I wouldn't do that. In most scenarios, third parties are not usually of the best interest to be in control or management of that which isn't there's. Most especially, when they've got nothing to get from it.

That's what I like having your coins stored away on an exchange when you've got a wallet that puts you at liberty to decide safety and the fate of your coin at any point.

Exchanges might have there advantages at giving the leverage to trade them but, it comes at greater risks. What might be best is that, you go about it with the what you can afford to lose and at other times, just deposit and withdraw.
Your better in charge than any third party.

[LegendaryK]

Bitcoin can be used as a unit of account without a problem. Also markets always exist, no matter if scam exchanges go bankrupt or not.
P2P and adoption are more important, but then again you trade a multiple coins.
Tadamichi too stupid and doesnt understand money so it pointless discussing with you.

But you like to pretend like you have half a brain, and try anyway.  

FYI2:
A more prudent thought for many , might be to use multiple exchanges or keep crypto as a % of one wealth, not as the entirely of one's wealth.
IE: Don't keep all of your eggs in one basket.

* Until Crypto exchanges are forced to enact their own version of FDIC, which insures a value is available for withdrawal even after an exchange collapse,
then you are in the wild west of crypto, just the same as banking was before the FDIC was enacted for banks.*
FDIC: The FDIC is a United States government corporation supplying deposit insurance to depositors in American commercial banks and savings banks

Spoiler alert, money in a bank isnt safe regardless of current regulation. Diversifying into different kinds of the same trash is also not really safe.

More like Dummy Alert, each bank in the US is required by law to have FDIC insurance,

meaning even if the bank goes belly up, you still received your funds up to a specified $ amount, currently $250000 per account per bank.
Credit Unions are under The National Credit Union Administration (NCUA) which also insures $250000 per account per credit union.
Only people storing over that amount per account in a single bank would lose anything.
Stock trading Companies in the US are part of Securities Investor Protection Corporation (“SIPC”),
which protects securities customers of its members up to $500000 (including $250000 for claims for cash).

Just because you live in a Banana republic , other people live in countries with laws and regulations.
If Crypto exchanges were required to insure their accounts up to $100000 , then alot of the exchange concerns would disappear for the majority,
and anyone over that amount store at other exchanges or at home.

FYI:
Once the US / Canada / Europe all ban Proof of Waste coins, you'll wish you had diversify.
When all of your wealth shoots up in 1 shot, it can also fall down twice as fast, diversity makes sure you don't starve when it does.  

[lovesmayfamilis]

It is thanks to heroes like James Howells and other poor fellows who lost their bitcoins that we understand the importance of our own responsibility to store our seed phrases. These stories thundered around the world, and I am sure that after them, anyone who knew about this and has even a small amount of bitcoins learned how to properly store and not be careless about passwords and everything else that can be valuable.
Trusting your assets to the exchange is tantamount to trusting any person who can die at any moment to betray, in short, unpredictable in their actions. Understanding who and how much will be to blame for the loss is much easier when you yourself are responsible than shifting your blame to others.

[cheezcarls]

You may have heard of James Howells and his $11 million plan to find a hard drive with $181 million in Bitcoin. That is a risk of self-custody. His chance of finding his bitcoin is actually good.

If you had bitcoin held on FTX, there is no amount of money or time that will bring those coins back. They are gone. You have a 0% chance of finding those bitcoin.

Even in the worst case scenario, self-custody is better than an exchange.

Not your keys, not your bitcoin.

If you aren't careful with your self-custody wallet, you will lose access to your Bitcoins forever. It's better to have more than one offline backup source in storing your private keys, seed phrases, etc., rather than sticking to one only. If possible, try to buy some metal bars that would let you engrave your details which are fire and water resistant.

Treat it like it's worth millions in value in which you'll do whatever it takes to secure them at all costs even in various situations like typhoon, fire in the house, etc.

[Henrobakkara]

His mistake was that he didn't have the priv keys written somewhere.

AFAIK he wasn't expecting BTC to actually become big so he just didn't mind the coins he got until its too late. Now he wants to overhaul a mountain of garbage. Today its widely advised even altcoins holders keep their private keys saved not just on a txt file but written on a piece of paper to minimize the risk even if they lose thier hard wallet, computer crash, or phone loss.

I agree and I believe most of the stories about losing Bitcoins in wallets and login details are mostly from the days when BTC wasn't taken that seriously because it had less monetary value then but I strongly believe that this might not be the case with anyone hodling their Bitcoin in any form of Hard Wallet now as we all understand how important that is and storing your BTC in hardware wallet while keeping your PKs is still the best. 

[davis196]

You may have heard of James Howells and his $11 million plan to find a hard drive with $181 million in Bitcoin. That is a risk of self-custody. His chance of finding his bitcoin is actually good.

If you had bitcoin held on FTX, there is no amount of money or time that will bring those coins back. They are gone. You have a 0% chance of finding those bitcoin.

Even in the worst case scenario, self-custody is better than an exchange.

Not your keys, not your bitcoin.

I think that your title contradicts your forum thread. Saying that self-custody risks "outweights" the crypto exchanges risk means that having crypto in your own cold wallets is riskier than leaving them in a crypto exchange. Is that what you are trying to say?
I think that having coins in a cold wallet is way less risky, if you know what you are doing and you have enough backups.
Putting your life savings and your trust into a centralized crypto company is a recipe for disaster. It doesn't matter how trustworthy the crypto company claims to be.
I don't know anything about James Howells and his 11 million USD plan. Spending 11 million just to find a hard drive that might be damaged and cannot be recovered seems like a very risky idea. Who is going to "invest" 11 million dollars into such plan?

[darkangel11]

The chances of James getting his hard drive back are slim because it's covered in tonnes of rubbish, if it's even there. There's a possibility that it was found by some drunkard and sold for scrap long time ago.
I wouldn't call his case a self-custody problem because he didn't care about that drive. He thought bitcoins weren't worth much so he didn't spend any time and money to secure them. Self custody implies that you want to keep the thing safe.

It is thanks to heroes like James Howells and other poor fellows who lost their bitcoins that we understand the importance of our own responsibility to store our seed phrases. These stories thundered around the world, and I am sure that after them, anyone who knew about this and has even a small amount of bitcoins learned how to properly store and not be careless about passwords and everything else that can be valuable.
Trusting your assets to the exchange is tantamount to trusting any person who can die at any moment to betray, in short, unpredictable in their actions. Understanding who and how much will be to blame for the loss is much easier when you yourself are responsible than shifting your blame to others.

Some people never learn. Novogratz put money in Luna, Luna happened to be a scam and he lost it all, so he put coins on FTX and held them there, lost again. I bet you next time he buys coins he's going to hold them on some centralized platform.

[tadamichi]

Bitcoin can be used as a unit of account without a problem. Also markets always exist, no matter if scam exchanges go bankrupt or not.
P2P and adoption are more important, but then again you trade a multiple coins.
Tadamichi too stupid and doesnt understand money so it pointless discussing with you.

You don’t understand it fool. CEXs aren’t the entire market. They’re not necessary for an asset to find a price. They would make this process more efficient if used right, but in the current environment they just distort the prices by their own actions. Even if 100% of people self-custodied, trading would still go on. Trading goes on outside of exchanges too and there are exchanges that don’t hold any funds themselves and allow their users to do it themselves. Even if  Bitcoin is used directly there can still be a fiat value attached to it, by the fiat value of the good. Which one of your idols told you that your asset won’t have value if scammers don’t run websites where they take your assets and distort the prices and supply? Self-custody is the point of any decentralized asset (there’s just one currently), without self-custody all the properties of that asset are lost.

More like Dummy Alert, each bank in the US is required by law to have FDIC insurance,

If you think a broken vehicle is safe/ gets you to your destination forever, because it’s insured - good luck.

If Crypto exchanges were required to insure their accounts up to $100000 , then alot of the exchange concerns would disappear for the majority,

You just won’t get it.

FYI:
Once the US / Canada / Europe all ban Proof of Waste coins, you'll wish you had diversify.
When all of your wealth shoots up in 1 shot, it can also fall down twice as fast, diversity makes sure you don't starve when it does.  

Good luck with diversifying into the same scam. Also i dont live in a banana republic where people starve based on how their investments perform or a place where they put themselves into that situation. Maybe that’s why your mentality will always stay a fiat sheep that worships big centralized entities, because you think you have no other choice to survive. Wake up.

[fuguebtc]

The real truth is that there are very few methods that are 100% safe. Both methods have their pros and cons. It all comes down to risk. The risk of self-custody is that you are going solo. You are the only person capable of protecting your money and coins from being lost or stolen, and that could be a daunting task. But at the same time, if you manage them correctly, it can also be quite secure. In the end, it will be up to you to weigh the pros and cons of each method and see which one looks like a better fit for your needs. But whatever you do, don't trust any third-party service too much. So, to reiterate: keep your coins out of online services as much as possible.

For me, no method is 100% safe, everything has risks but choose less risky options and we should control our own assets, not give it to anyone or any third party. But decommissioning centralized exchanges is not possible and it will be part of our investment journey, our job is to limit leaving too much money on it and always withdraw all assets to our personal wallet after the transaction is complete.

[taufik123]

For me, no method is 100% safe, everything has risks but choose less risky options and we should control our own assets, not give it to anyone or any third party. But decommissioning centralized exchanges is not possible and it will be part of our investment journey, our job is to limit leaving too much money on it and always withdraw all assets to our personal wallet after the transaction is complete.

it will work fine if done the right way. Indeed, there will be no method that is 100% safe because everything has its own risks.
Currently, some centralized exchanges even update their ToS (Term of Service) with new rules that favor them (exchanges) rather than customers so that centralized exchanges will be safe from customer lawsuits.

Therefore, as you said, limiting the entry of money into a centralized exchange must be limited, because the risk of loss will still occur. and storing in a personal wallet that has full control would be recommended, but remember security is in your own hands, back up your wallet and store it in a safe place so you don't lose access.

[Findingnemo]

You may have heard of James Howells and his $11 million plan to find a hard drive with $181 million in Bitcoin. That is a risk of self-custody. His chance of finding his bitcoin is actually good.

If you had bitcoin held on FTX, there is no amount of money or time that will bring those coins back. They are gone. You have a 0% chance of finding those bitcoin.

Even in the worst case scenario, self-custody is better than an exchange.

Not your keys, not your bitcoin.

Keeping bitcoins in your Wallet actually gives you the complete access along with responsibility, in the example you mentioned the chances of finding the lost hard drive is less and probably zero in my opinion but the point is you will have a chance but if you gave the responsibility to someone then you can't really do anything about it.

[Welsh]

The title has some merit to it if you actually think about it. Just imagine, that these companies are employing terrible security, yet they're hosting millions of pounds worth of Bitcoin, and sometimes more. Yet, we expect the average user to have good security, when we know that people are generally quite lazy.

How many users are verifying the signature of their wallet, how many are checking the software they're using. I bet they see it as open source, and just blindly trust it. Then, you've got people hosting their wallets on compromised machines or just poorly implemented security like weak passwords or sharing their credentials with people they trust.

I've said this before, but I don't think being responsible for your own security actually appeals to everyone, and that's fine. Hence, why banks will likely always be used. Since, if you are someone that doesn't know anything about computers or security, trying to secure your life savings on a computer probably isn't the best idea.

[PrivacyG]

How many users are verifying the signature of their wallet, how many are checking the software they're using. I bet they see it as open source, and just blindly trust it. Then, you've got people hosting their wallets on compromised machines or just poorly implemented security like weak passwords or sharing their credentials with people they trust.

I am usually extremely paranoid yet I sometimes blind trust software stuff myself.  It is truly exhaustive having to deal with ALL kinds of verifications needed to know whether a software is truly legitimate and safe or not.  Even if the software is Open Source and trusted by the Bitcointalk community, there is always a chance ONE single line of code turns it into something very malicious you should not trust.  If you want it all to be 100.00% safe, you need to verify everything, including the source code.  You have to build all software by yourself rather than installing DEB and EXE's.

On the other hand, you have Exchanges supposedly storing Cryptocurrency holdings safely.  Then you find out there are people like CZ who are running their whole Cryptocurrency stuff off an USB stick.  Even as a multi billion dollar company, the security may be more or less the same one you get by individually storing your own coins.  That is, unless the company hires security experts and properly stores Bitcoin in a neat, close to perfect way.  How many do this however?

The level of your Wallet's security depends on a lot of factors.  It is very relative.  And let us be sincere, none of us have the perfect, flawless way to store and use Bitcoin.  Even the extremely paranoid ones still have flaws in their behaviors.  But what makes an Exchange much, much riskier than self custody is particularly that you do not know how their (your) coins are stored.  They may be stored by security experts.  But chances are they are not.  So why risk it then, if you have the choice to store them and meet your expected and wanted level of security?

-
Regards,
PrivacyG

[spectre71]

"5 dollar wrench attack"

A pillar point to self custody is "don't talk about fight club". I'm not talking about anything illegal, just people can't take what they don't even know is there. Don't tell anyone, ever. If people know then leave some on the one you want them find / know about (decoy).

I used to have money, everybody well always trying to gain access to it, giant target..

[Ucy]

You can greatly reduce the said risk of self-custody by dublicating the copy of your Bitcoin secret keys that's probably inscribed on corrosion-proof metallic objects and hide them in multiple places, preferably buried underground.
 Not good idea to store your secret keys in one place especially if the Bitcoin is very valuable to you.

[tadamichi]

I've said this before, but I don't think being responsible for your own security actually appeals to everyone, and that's fine.

Its probably a case of people underestimating their ability to keep 12-24 words safe and overestimating the security of their assets being in the hands of other people hiding behind opaque institutions. It doesnt appeal to everyone, but we should communicate clearly that it can be learned relatively easily by anyone, that none of the properties of Bitcoin apply to coins held on an exchange and what the consequences are of doing so. A newbie will thank you for holding them accountable if it saved them from being rekt. If i was a newbie i would be thankful if people annoyed me till i get the warning and then start to self-custody, instead of keeping a false sense of security and then getting rekt. Self-custody is the only way for Bitcoin to be different from the current system. A world with most Bitcoin held on exchanges wouldnt be so different from fiat. With encouragement, support and being annoying enough a lot is possible. I have never met a newbie yet that was unwilling or unable to self-custody with the right support around him or that lost anything while doing it.

Hence, why banks will likely always be used. Since, if you are someone that doesn't know anything about computers or security, trying to secure your life savings on a computer probably isn't the best idea.

A person shouldnt put their life savings into something they dont understand the basics of. Bank custody doesnt change that or makes this practice magically safe. Its the opposite, if theyre handing over their life savings to someone else and dont understand the thing its invested in, is even a worse idea. History proves this.

[teosanru]

You may have heard of James Howells and his $11 million plan to find a hard drive with $181 million in Bitcoin. That is a risk of self-custody, but his chance of finding his bitcoin is actually good.

If you had bitcoin held on FTX, there is no amount of money or time that will bring those coins back. They are gone. You have a 0% chance of finding those bitcoin.

Even in the worst case scenario, self-custody is better than an exchange.

Not your keys, not your bitcoin.

I won't deny that it's a valid point. I mean in some cases this can be really something that can happen without you even doing anything wrong. Like for an example if your house catches a fire or ends in a natural calamity while your seed phrase was inside. Some would say that you should keep it in an alternative place outside your home also but honestly think of it what could be a safer place than home? Also keeping it with you 24 x 7 isn't also a very good option and learning it and forgetting it is pretty common as well. So obviously this risk is there but it doesn't outweigh the risk of exchange for sure. This is something that you are doing and is very much legible, not some foolish person playing with your money by not keeping enough backing for your assets.

[PrivacyG]

I have never met a newbie yet that was unwilling or unable to self-custody with the right support around him or that lost anything while doing it.

I have.  Or at the very least, Newbies who are willing to learn self custody until they find out there is an easy way out, which is Exchanges and Custodial Wallets.  It is very hard to make someone move from the comfort of Banking to storing Bitcoin at their own risk.

-
Regards,
PrivacyG

[LegendaryK]

While the idiot tadamichi wants to pretend every person has the technical expertise and self discipline to secure their crypto.
The following shows , it should be a personal decision as risks vary per individual.
Until crypto exchanges are forced to insured a fiat value of their account holding.


Self Custody failures below.
https://www.jumpstartmag.com/top-3-stories-of-lost-bitcoin-fortunes/

James Howell’s lost hard drive

In 2013, 36-year-old engineer James Howell threw away the hard drive containing the cryptographic key to his Bitcoin wallet while clearing out his house. Howell used to have two identical hard drives and ended up throwing away the wrong one, locking himself out of his 8,000 BTC holdings, which would be worth close to US$158 million as per the current exchange rate.

Stefan Thomas’s lost password

Former Chief Technology Officer (CTO) of Ripple, Stefan Thomas, made headlines in 2021 for forgetting the password of the hard drive that contained the key to his Bitcoin wallet. The hard drive, known as the Iron Key, has been designed to be impervious to all attacks and only provides users with ten attempts before they are permanently locked out of the drive. As of 2021, Thomas is down to his final two attempts.

The Bitcoin wallet that Thomas cannot access contains 7,200 BTC, which would be worth over US$142 million today. As per Thomas, the only other way to retrieve the information would be by breaking the drive apart, removing its chip and putting it under a scanning electron microscope to read the individual flash memory cells.

However, this process would require a lot of time and money, and even after that, there are chances that he would fail to retrieve the information. Thomas has been trying to log into the hard drive since 2012 and says he has now made peace with his loss.

Individual X’s Bitcoin hacking challenge

If you are a frequent reader of our website, you would be familiar with how the crypto space has its fair share of hackers and cybercriminals. Many cybercriminals steal crypto wallets and try to unlock them to access the funds inside. If they are unsuccessful in cracking the passwords, they sell them to other hackers.

The same had been happening with Individual X’s wallet, the seventh-largest Bitcoin wallet in the world. As far back as 2018, it had been making the rounds among hackers, who would pry the wallet open to access the 69,000 BTC (worth over US$1.18 billion as per the current exchange rate) it contains.

The blockchain analysis conducted by Chainalysis on this wallet found that all the funds inside had been sent via transactions from the dark net marketplace Silk Road. The site was used for money laundering and drug trade until the Federal Bureau of Investigation shut it down in 2013. The founder of the site, Ross William Ulbricht, was arrested in the same year and has since been serving a life sentence. While the Silk Road was still online, an unnamed individual, referred to as Individual X by the authorities, had been stealing from Ulbricht by manipulating a security loophole in the site.

As of 2020, U.S. federal authorities have seized all the funds in Individual X’s wallet. In 2021, the government signed an agreement with Ulbricht that a portion of the seized Bitcoins would be used to pay the US$183 million in restitution as a part of his sentence.

FYI:
The other elephant in the room,
the price of btc can crash in minutes verses fiat at anytime,
which is why being able to trade out faster to fiat could save you millions.
Which is why some prefer exchanges over home wallets, faster trading time.
What good is owing btc, when it loses 80% of it's fiat value and you were unable to trade out.  

https://medium.com/the-capital/this-bitcoin-family-had-the-perfect-exit-strategy-but-are-now-moving-back-into-the-market-bfa571c78b4c

This Bitcoin Family
Although they say they lost more than $1 million in cryptocurrency this year,

That $1 million of fiat value, their # of bitcoins has not changed.
So much for self custody. 

[tadamichi]

I have never met a newbie yet that was unwilling or unable to self-custody with the right support around him or that lost anything while doing it.

I have.  Or at the very least, Newbies who are willing to learn self custody until they find out there is an easy way out, which is Exchanges and Custodial Wallets.  It is very hard to make someone move from the comfort of Banking to storing Bitcoin at their own risk.

-
Regards,
PrivacyG

Why are they so resistant to it? I really dont get it. Its scary and uncomfortable at first, but you can just store a few bucks at first and then get used to it fast. Its a superior experience in the end, to have all the benefits of a decentralized asset.

While the idiot tadamichi wants to pretend every person has the technical expertise and self discipline to secure their crypto.
The following shows , it should be a personal decision as risks vary per individual.
Until crypto exchanges are forced to insured a fiat value of their account holding.


Self Custody failures below.

These cases didnt use seedphrases. And what makes it impossible for people to develop the discipline and knowledge to use a wallet software and to store 12 to 24 words safely? I seriously wanna know how this barrier is too high, if we know the consequences of not doing this.