Can Custodial Platformz Ever Match the Security of Bitcoin Self Custody?

[Joeboy]

There is this one particular phrase that always comes up in most of our discussion concerning Bitcoin, and this is "Not your Keys, not your Coins."  Thiiss very prrinciple is taken seriously by many of persons her, but I noticed that there are still a good numbers of Bitcoiners both the experts and even the newbies that still relies on custodial platforms. A fellow Bitcoiners once told me that his preference for custodial platforms is as a result of "it's easy access and convenience and even claimed that it had a stronger security measures." But most of what he said don't really add up if we take a look at the collapse of FTX in 2022.

With self-custody, the responsibility is entirely on the individual no doubt, but if you control your private keys, you control your Bitcoin. But once you hand that control over to custodian platform, you are simply taking that trust and handing it over to another and the case of FTX and many others has shown us how bad that can eventually turn out.

At the same time we shouldn't also ignore that self-custody comes with its own challenges, I mean we heard and seen cases where people lose their wallets and their seed phrases. Buut even with those risks, one thing is still certain which is that once you give up your keys, you have given up your control. To me, that’s enough reason to say "YES to self-custody, and NO to custodial platforms."

[Lida93]

There is this one particular phrase that always comes up in most of our discussion concerning Bitcoin, and this is "Not your Keys, not your Coins."  Thiiss very prrinciple is taken seriously by many of persons her, but I noticed that there are still a good numbers of Bitcoiners both the experts and even the newbies that still relies on custodial platforms. A fellow Bitcoiners once told me that his preference for custodial platforms is as a result of "it's easy access and convenience and even claimed that it had a stronger security measures." But most of what he said don't really add up if we take a look at the collapse of FTX in 2022.

It's only lazy people that would prefer centralized custodial platforms to self custody wallet. If you value security and privacy a lot, you won't be thinking about trusting a CEX over a self custodial wallet where you're in charge and responsible for your coins.

What makes most people use custodial platforms like CEX isn't really about convenience it just for P2P trading whenever we have to with our coins. Op am sure your coins has never been held in siege by CEX for no good reasons while they give mandatory request for provision of specific documents that you never had thought of providing. Maybe by then you would know if your so-called felt"fellow bitcoiner" was delivering to you the best of notes on bitcoin custody.

[Solosanz]

Why people prefer custodial wallet?

1. They can generate more coins by staking etc.
2. It's cost efficient, they don't need to pay transaction fee, trading very is very cheap.
3. There's an exchange who claim to have funds for refund, so this make people think it's safer. They thought even the exchange got hacked and their coins drained, the exchange will refund back all the coins.

It's very hard for non custodial wallet to shine because hack not often to happen and they're not the victim.

[Ucy]

Part of the strong security advantage of decentralized or non-custodial platforms is the ability to hold your keys for as long as possible, without worrying about exchange hacks or shut down... As long as Bitcoin still exist, you can always access your coins with your keys. But it's not the case with centralized or custodial managements. Many old exchanges have shutdown with users struggling or unable to recover their coins.

Another security advantage of selfcustody is that your biometrics data or private/sensitive info is not revealed to strangers who may do whatever they want with it.

*It's important to have multiple copies of your private keys saved in safe locations, and it won't easily get lost without one or more backups.

[Stalker22]

Its easy to view this as black and white.  You are correct that "not your keys, not your coins," is the basic principle of Bitcoin.  And you are also correct about the FTX and others showing exactly what can and does happen when you trust third parties.  But with all due respect, a hell of a lot of people simply dont have the ability to handle the responsibility of self-custody.

And your friend is right about convenience.  For the average user who just wants to buy and sell little bits without having to mess with the technical headaches of self-custody or a hardware wallet, an exchange is the easiest (and practically the only) option.  The argument that FTX proves that all custodial platforms are bad is lazy.  The problem was not the concept of a custodian; it was a fraudulent, poorly managed company.

[Nathrixxx]

At the same time we shouldn't also ignore that self-custody comes with its own challenges, I mean we heard and seen cases where people lose their wallets and their seed phrases. Buut even with those risks, one thing is still certain which is that once you give up your keys, you have given up your control. To me, that’s enough reason to say "YES to self-custody, and NO to custodial platforms."

Privacy begins with the realization of using a non custodial wallet for our bitcoin.

The issue here is that some don't know about the security measures required of them when it comes to wallet use, while some may have a little idea but choose not to take any steps, despite on the forum that we always talk about not your keys not your coins, some don't really understand the meaning of this either.

[pancelot]

There is this one particular phrase that always comes up in most of our discussion concerning Bitcoin, and this is "Not your Keys, not your Coins."  Thiiss very prrinciple is taken seriously by many of persons her, but I noticed that there are still a good numbers of Bitcoiners both the experts and even the newbies that still relies on custodial platforms. A fellow Bitcoiners once told me that his preference for custodial platforms is as a result of "it's easy access and convenience and even claimed that it had a stronger security measures." But most of what he said don't really add up if we take a look at the collapse of FTX in 2022.

With self-custody, the responsibility is entirely on the individual no doubt, but if you control your private keys, you control your Bitcoin. But once you hand that control over to custodian platform, you are simply taking that trust and handing it over to another and the case of FTX and many others has shown us how bad that can eventually turn out.

At the same time we shouldn't also ignore that self-custody comes with its own challenges, I mean we heard and seen cases where people lose their wallets and their seed phrases. Buut even with those risks, one thing is still certain which is that once you give up your keys, you have given up your control. To me, that’s enough reason to say "YES to self-custody, and NO to custodial platforms."

"Not your keys, not your coins" isn't just a slogan; it's the core of Bitcoin's philosophy: control your own assets. Custodial platforms may seem safer and more convenient, but the 2022 FTX crash demonstrated the fragility of trust in third parties.
Self-custody does require discipline; losing your keys or seed phrase is a real risk. But by properly managing your private keys, you can truly control your Bitcoin, in line with the principles of decentralization and financial freedom that Bitcoin promises, and that's a great thing.
In short, the convenience of custodial platforms can never match the true security of self-custody. With Bitcoin, control is in your own hands, not in the hands of institutions or other parties.

[DubemIfedigbo001]

Custodial platforms like CEX for example is very risky to keep your coins, it is funny people think about presumed easier accessibility more than they think about security. Talking about accessibility, coins in a non-custodial wallet is still very much accessible only that it would need to be moved to an exchange before it can be liquidated and still security of funds is more important to me than just being able to liquidate them easily.

Self-custody is better as long as you refrain from actions that would expose you to social engineering or loosing your keys but when entrusting your funds with custodial platforms, you cannot guarantee what they are doing with those funds and how much more it would be safe and even accessible. Just yesterday a lot of my friends could not withdraw their funds from Kucoin which even brings up the question if custodial platforms is even more accessible since they cannot use their funds at a time they needed it and such is never heard of non-custodial wallets.

[X-ray]

At the same time we shouldn't also ignore that self-custody comes with its own challenges, I mean we heard and seen cases where people lose their wallets and their seed phrases. Buut even with those risks, one thing is still certain which is that once you give up your keys, you have given up your control. To me, that’s enough reason to say "YES to self-custody, and NO to custodial platforms."

Self custody is better and only people who don't care about their money keep 100% their asset in custodial wallet.

The concern that you mentioned about losing seed phrases and so on is real, but it can also be prevented easily. With just having backups, you can already avoid this and reduce the chance of losing seedphrase to less than 99%. What it takes is just multiple hardware wallet and multiple encrypted seed phrases.

On the other hand, custodial wallet got their problems too, such as losing money over sending on the wrong network, and so on. While the address is the same and private key is the same, for some reason the party that's responsible for the custody just don't want to retrieve it for you. This is the truth that people often ignore or just don't want to know. Ignorance is bliss I guess.

[CryptoYar]

Saying that Not your Keys, not your Coins is at very heart of what Bitcoin is all about. And it is tempting to use easy to use platforms since they feel safe like regular bank downfall of companies like FTX shows us huge risk. When you give your Bitcoin to company you are just trusting them to keep it safe and we have seen that this trust can be broken. And keeping your own Bitcoin has risks like losing your phrase these are risks you can control yourself. Your conclusion that it is better to manage your own Bitcoin is solid one as it aligns with main goal of Bitcoin to give people control over their own money.

[shinratensei_]

Not your key is indeed not your coin.
Some cex declare user's deposited asset as part of their property/company's estate in insolvency.

One thing that those so called expert never learn is the law that follows with the custodial wallet.
That's why, just use your own wallet man. Use cex when needed such as trading, etc. Not to save for long term.

[BitGoba]

Bitcoin is money that anyone can hold independently, without the need for banks or custody services. However, after 400–500 years of banks, paper money, and the fiat system, people have become dependent . Most neither want nor are able to manage their own money, being accustomed to having others take care of it for them, not realizing that by doing so they lose control and rely on the decisions of others. Bitcoin, on the other hand, returns power and responsibility to the individual , whoever controls the keys controls money.Bitcoin is a paradigm shift, and people need time to adapt to the new reality Bitcoin standard and a world without banks, where everyone holds their own money.

[Localhostspeed]

At the same time we shouldn't also ignore that self-custody comes with its own challenges, I mean we heard and seen cases where people lose their wallets and their seed phrases. Buut even with those risks, one thing is still certain which is that once you give up your keys, you have given up your control. To me, that’s enough reason to say "YES to self-custody, and NO to custodial platforms."

You mentioned challenges and that is exact problem of centralized custody. Look at two things here:

Self custody: you are going to be the one to hold your coins responsible for security and proper safeguard of your seed phrase or private keys. You hardly get comprised and you don't have to worry about anything because you trust your intuitive measurement.

Non custodial: Both you and the custodial will be the one doing the security check, you will be the one to keep your email safe, a password for login and, 2FA while they keep the coin for you and they manage seed phrase. The risk here is both you and the custody can get comprised, email can be easily hack and exchange hot wallet can be hack too and that lives both of you in danger, your coins might get stolen if things go wrong with the custodial.

Instead of relying on both your security and that of the custodial, why not be the custody of yourself and sleep well at night. Safe custody remain the best.

[Zlantann]

At the same time we shouldn't also ignore that self-custody comes with its own challenges, I mean we heard and seen cases where people lose their wallets and their seed phrases. Buut even with those risks, one thing is still certain which is that once you give up your keys, you have given up your control. To me, that’s enough reason to say "YES to self-custody, and NO to custodial platforms."

One of the important but highly overlooked advantages of self-custody is privacy and freedom. You benefit a lot when nobody knows how much you are worth, spend, or receive. The freedom to use your money the way you want is another big advantage.

There are basic security procedures that will make your journey as a self-custodian easy. Your seed phrase is like your safe, it should be handled carefully. It is advisable to write it on a water and fire proof material and keep it in different safe locations.

Keeping your money in an exchange is going back to the traditional banking era. It should solely be used for exchange and nothing more.

    

[joniboini]

At the same time we shouldn't also ignore that self-custody comes with its own challenges, I mean we heard and seen cases where people lose their wallets and their seed phrases. Buut even with those risks, one thing is still certain which is that once you give up your keys, you have given up your control.

Another thing to note is that you can predict and plan preventive measures accordingly if you're using a self-custodial setup. I don't think you can say the same thing for a centralized platform. They offer 2FA, passwords, and so on, but there's nothing you can do to make sure they secure their end properly. So many cases where an exchange got hacked because an employee fell victim to a phishing link or something similar. You can't do anything other than withdraw your money whenever you don't trade to anticipate that.

[Z-tight]

A fellow Bitcoiners once told me that his preference for custodial platforms is as a result of "it's easy access and convenience

It is not difficult to use self custodial wallets or even hardware wallets. Except this person is a trader who needs to store some of their funds on an exchange to trade daily, if not the talk of access and convenience is nonsense. Talking about access, a custodial platform can deny you access to your funds anytime, but in self custody you always have access. So whoever said this bs is misinformed.

At the same time we shouldn't also ignore that self-custody comes with its own challenges, I mean we heard and seen cases where people lose their wallets and their seed phrases.

That is the responsibility of self custody, i don't see it as a challenge but rather a responsibility if you decide to be your own bank and secure your funds yourself, rather than leave that job to custodial services.

[Ruttoshi]

Why people prefer custodial wallet?

1. They can generate more coins by staking etc.

Those people don't have the knowledge of bitcoin because bitcoin isn't a coin for staking since it uses POW and not POS. Secondly, how much profits will you generate for staking your coins, it means that you are gambling with your investment. If your bitcoin is in your self custody wallet as the price increases, you see your profit.

2. It's cost efficient, they don't need to pay transaction fee, trading very is very cheap.

Currently, bitcoin transaction fee is very cheap as you can pay below 1sat/Vbyte for sending funds. I know that you cannot trade without an exchange which is the reason why only traders should keep their trading funds in the exchange.

Your funds can be freezed by exchange if the government is investigating you.

[Solosanz]

Those people don't have the knowledge of bitcoin because bitcoin isn't a coin for staking since it uses POW and not POS. Secondly, how much profits will you generate for staking your coins, it means that you are gambling with your investment. If your bitcoin is in your self custody wallet as the price increases, you see your profit.

Well, they don't care about POW, POS, POA, POH etc.

I don't know how much the profit from staking, let's say 4%.

If you hold in self custody wallet, your 1 BTC when the price was $20,000, now your 1 BTC worth $40,000. You earn $20,000.
If they stake in centralized exchange, their 1 BTC when the price was $20,000, now their BTC would be 1.04 BTC, they earn $21,600. Profit is profit.

Currently, bitcoin transaction fee is very cheap as you can pay below 1sat/Vbyte for sending funds. I know that you cannot trade without an exchange which is the reason why only traders should keep their trading funds in the exchange.

Your funds can be freezed by exchange if the government is investigating you.

It's not about cheap, if you hold in self custody wallet, you will spend more money and not maximizing your profit.

For now they don't have any problem with CEX, so they don't care about freeze funds.

[Obim34]

All you narrated still boiled down to "Not Your Keys Not Your Coins".

If you can go back to read the replies of those who said the phrase, it is always referring not to hold your Bitcoin in a custodial wallet (CEX), reason because there are cases whereby those custodial wallets can be hacked or they can freeze your coins, making you fill out personal informations before releasing your Bitcoin.

You should aswell understand how self custodial wallet function, self custody is better if you know how to keep your seed phrase private.

[dumpsterhawk]

Most platforms have better security than most users today already.

There is this one particular phrase that always comes up in most of our discussion concerning Bitcoin, and this is "Not your Keys, not your Coins."  Thiiss very prrinciple is taken seriously by many of persons her, but I noticed that there are still a good numbers of Bitcoiners both the experts and even the newbies that still relies on custodial platforms. A fellow Bitcoiners once told me that his preference for custodial platforms is as a result of "it's easy access and convenience and even claimed that it had a stronger security measures." But most of what he said don't really add up if we take a look at the collapse of FTX in 2022.

With self-custody, the responsibility is entirely on the individual no doubt, but if you control your private keys, you control your Bitcoin. But once you hand that control over to custodian platform, you are simply taking that trust and handing it over to another and the case of FTX and many others has shown us how bad that can eventually turn out.

We are talking about a fairly unregulated and uninsured platform though. Things will get better over time as bad actors disappear and regulations become better, but nothing will ever beat an educated user who does self custody. That said, such users are very few.