How to Self Custody Bitcoin and Other Crypto?

When you buy cryptocurrency on an exchange platform you need to safely store your assets. A lot of users just keep their crypto in their exchange platform accounts because the exchanges provide them with free crypto wallet features.

However, many users, especially beginners, don’t know that when they’re storing crypto on a centralized exchange platform, they aren’t really in control of those assets.

That’s because the wallet doesn’t belong to them and the exchange platform has full control over their crypto. Fortunately, users can choose to take control of their assets and self custody Bitcoin and other cryptos with the help of non-custodial crypto wallets.

In this guide, you’ll learn about the dangers of delegating custody over your assets to a third party and how to self custody Bitcoin and other crypto.

Crypto Custody

All cryptocurrencies are stored in public addresses on their native blockchains. Public addresses are associated with crypto wallets. For example, if you want to buy some Bitcoin and store it safely, you need a crypto wallet that will provide you with a unique Bitcoin public address on the blockchain.

Likewise, if you decide to buy BTC on a crypto exchange and leave the coins on the platform, you’re leaving them in the platform’s BTC public address that belongs to your user account. 

This public address is tied to your platform account, but you aren’t in control of that address’s assets. That’s because the address itself belongs to the crypto exchange, which has full access to the stored funds.

When you want to access the funds in that address, the exchange lets you do so per the platform’s user policy. This means that you don’t get to keep the private keys to your crypto yourself.

Private keys are essential for managing the assets stored in your public address because they’re your proof of ownership. When you store crypto on an exchange platform, the exchange manages the private keys and acts as the custodian of your assets. 

This means that centralized cryptocurrency exchanges are much like fiat currency banks. When you use the bank’s services and deposit money into your bank account, you agree to the bank’s terms of use. Every time you want to withdraw or deposit money, you must abide by the bank’s operational protocol. The bank keeps custody of your money and can freeze your bank account if suspicious or pressured by the authorities. 

The same goes for centralized crypto exchanges and other companies that provide crypto custodian services. This contradicts the basic principles of crypto, such as decentralization and full asset ownership.

Dangers of Custodial Storage

When using a custodial storage solution such as a centralized crypto exchange, your assets’ safety largely depends on that platform’s security measures.

The fact that the leading exchange platforms deal with hundreds of millions of USD worth of assets on a daily basis makes crypto exchanges prime targets for hackers. 

Hacking a centralized crypto exchange is the jackpot for hackers and there were numerous high-profile exchange hacks in recent years that left users without several billion US dollars worth of crypto. 

For example, the KuCoin exchange platform suffered a 270 million USD hack in 2020, while hackers managed to steal around 60 million USD of crypto from Bitfinex in 2016, another 45 million USD from UpBit in 2019, and the list goes on.

Another key danger of custodial storage is that the crypto exchange or custody provider whose services you’re using can go out of business, and you can lose all of your cryptos.

This might sound highly unlikely to happen, but it’s possible. Just recently, FTX, one of the largest crypto exchanges in the world with a market cap of over 30 billion USD, suddenly collapsed.

The FTX collapse left platform users without access to the funds in their FTX accounts. Now that FTX has filed for bankruptcy, it isn’t clear when and whether customers will be able to retrieve their assets at all.

Be Your Own Crypto Custodian

The best way to ensure your crypto is safe is to self custody Bitcoin and other cryptocurrencies.

With fiat currencies, people are used to having banks as their custodians. On the other hand, cryptocurrency allows users to take full control of their money and avoid middlemen. There’s no need to give custody over your assets to a third party when you can be your own crypto custodian and use a crypto wallet to secure your funds.

The greatest advantage of self-custody is that you fully control your crypto. You don’t need to ask anyone for permission to access your funds; your crypto’s private keys are always stored on your mobile phone, desktop computer, or wallet device in the case of hardware wallets.

The most important thing to be aware of when you self custody your crypto is that you’re responsible for your funds’ safety. Crypto wallets offer different security measures for keeping your private keys safe, but it’s up to you to make sure the device you’re using to access your wallet isn’t compromised.

Avoid clicking on any unverified links because hackers often send phishing emails with shady links, impersonating crypto wallets and other apps. Use only certified apps from official websites.

Finally, hackers frequently distribute malware links through social media platforms and messenger apps. For example, the Telegram messaging app is known to be a hotspot for crypto hackers posting malware links that might steal your wallet password. If you choose to self custody crypto, your wallet is as safe as your online behavior.

Non-Custodial Crypto Storage Options

Non-custodial storage simply means you fully control your wallet and private keys. You have non-custodial software and hardware wallets at your disposal.

Most popular software wallets are non-custodial and store your private keys on your computer or mobile device, depending on the type of wallet.

To use a desktop wallet, you need to download it and install it on your computer, just like any other program. Mobile wallets come in the form of mobile apps for Android and iOS operating systems. There are also browser wallets that you can install as browser extensions for Google Chrome and other popular web browsers. 

Software wallets use a mix of passwords, PIN codes, and other security measures to keep hackers away from your private keys. Additionally, your wallet will provide you with a recovery seed phrase that consists of 12 or 24 words. Be sure to write the seed phrase down and store it somewhere safe. If you lose access to your device, you’ll be able to recover your wallet on another device with the help of the seed phrase.

Hardware wallets provide users with added security because they store private keys offline. Since the keys are kept offline, there’s no way someone could steal your keys through a cyberattack. These wallets are basically specialized USB devices designed to store private keys.

Hardware wallets aren’t free like software wallets, but they are extremely secure and worth the extra expenses, especially if you plan to store a lot of crypto on them.

Software Wallets

Let’s have a look at some of the most popular non-custodial software wallets on the market.

Trust Wallet

Trust Wallet is the official wallet of Binance, the largest cryptocurrency exchange on the market. The wallet comes in the form of a mobile app for Android and iOS operating systems and has recently added support for desktop devices in the form of a browser extension. Trust Wallet has one of the largest user bases among software wallets, with over 25 million users worldwide.

The wallet even has its own Trust Wallet Token (TWT), which is a trending cryptocurrency ranked among the top 100 cryptos, according to CoinMarketCap. Trust Wallet is a multi-currency wallet that supports thousands of cryptocurrencies across numerous blockchains, such as Bitcoin (BTC), Ethereum (ETH), Binance Chain, Avalanche (AVAX), Polygon (MATIC), Fantom (FTM), Optimism (OP), and many other networks.

The wallet is very easy to use thanks to its smooth design and simple interface. You can create multiple separate wallets within your account, and you’ll get a separate recovery seed phrase for each wallet. You can protect your wallet with a PIN code or set up fingerprint authentication to make sure no one can hack your wallet.

Trust Wallet has an integrated crypto exchange feature that lets users swap tokens within the wallet. Also, you can make crypto purchases using a bank card. The wallet supports NFT storage and has an NFT section to view digital collectibles. On top of this, Trust Wallet has a very practical dApp browser that you can use to connect to thousands of decentralized apps on numerous blockchains.

Coinbase Wallet

Coinbase Wallet is the official crypto wallet of Coinbase, the second-largest crypto exchange. This wallet supports various popular blockchains along with thousands of crypto tokens, such as BTC, Solana (SOL), MATIC, ETH, AVAX, Cardano (ADA), Tether (USDT), Decentraland (MANA), and other altcoins. 

Coinbase Wallet is great for beginners because it’s very easy to use and comes with an optional Coinbase integration, allowing users to buy crypto on Coinbase and immediately store it in their non-custodial Coinbase Wallet.

The wallet generates a recovery seed phrase and uses password protection to keep unauthorized parties from accessing your private keys. You can install Coinbase Wallet on your mobile device as an app or browser extension for Google Chrome.

The wallet’s NFT gallery allows you to browse NFTs and easily connect to NFT marketplaces. You can even buy NFTs directly with fiat currency and have them delivered to your Coinbase Wallet. The built-in dApp browser is your gateway to thousands of decentralized apps, such as DeFi protocols, decentralized exchanges, marketplaces, and blockchain games.

You can swap cryptocurrencies within the wallet and even connect it to a Coinbase account to trade on the platform directly. In case you want to buy crypto without using a centralized exchange, you can buy numerous digital currencies within the wallet with a bank card.

MetaMask

MetaMask is a veteran crypto wallet launched in 2016 as an exclusive non-custodial crypto wallet for the Ethereum blockchain, meaning it only used to support ETH and Ethereum-based ERC-20 tokens.

However, MetaMask has evolved to accommodate all blockchains compatible with Ethereum through the Ethereum Virtual Machine. This includes networks like Avalanche, Arbitrum, Optimism, Polygon, Fantom, Binance Chain, and others.

In total, MetaMask supports thousands of different tokens, but it doesn’t support the BTC blockchain. You’ll need to exchange BTC for Wrapped Bitcoin (WBTC) on the Ethereum network to store BTC on MetaMask.

MetaMask is a handy browser extension, but the wallet also has a mobile app for Android and iOS users. You can create multiple wallets for different blockchain networks within your MetaMask account. This means you can have one wallet for ETH, one for MATIC, and one for the Binance Chain, and each of them gets a separate recovery seed phrase.

MetaMask browser extensions keep private keys encrypted in your browser, while the mobile version of the wallet stores the private keys on your phone.

MetaMask is one of the leading software wallets on the market, with more than 21 million users, so dApp developers usually include MetaMask connectivity buttons on their platforms. These buttons enable MetaMask users to connect their wallets to dApps with just a few clicks. The wallet also has a practical dApp browser and an NFT gallery.

Hardware Wallets

Let’s now have a look at the leading hardware wallets you can use to self custody your crypto portfolio.

Trezor

Trezor is the manufacturer of Trezor Model One, the first hardware crypto wallet on the market. The Model One is a key-size USB device with an elegant black design that includes a small screen and two buttons. Users can browse assets and approve transactions with the two buttons on the devices.

The more advanced Trezor Model T comes with a touchscreen. Both wallets support more than 1,000 digital currencies, including market-leading coins like BTC, ETH, ADA, Ripple (XRP), AVAX, BNB (BNB), Bitcoin Cash (BCH), Solana (SOL), and others.

Trezor protects your private keys by combining passwords, PIN codes, and state-of-the-art hardware encryption. Your private keys are always kept offline. To use your Trezor device for managing assets or facilitating transactions, you need to install the Trezor firmware on your computer or mobile device. Once installed, you can connect your Trezor device with a USB cable and transfer crypto. 

Even when your wallet is connected to a computer or mobile phone, the private keys remain separate from the internet connection thanks to the Trezor hardware encryption features.

On top of this, Trezor allows users to buy and exchange crypto through the wallet’s firmware, which means you don’t need to use any centralized crypto exchanges to invest in crypto. You can also connect your Trezor device to various popular software wallets to get quick access to your crypto while on the move while keeping your private keys offline.

Ledger

Ledger is another leading hardware wallet manufacturer famous for producing some of the most secure hardware wallets on the market.

The Ledger Nano S and Nano X devices are certified as devices with a Secure Element, thanks to the CC EAL5+ microchips they use. These chips prevent all types of manual hacks and ensure that the devices’ private keys are separated from any temporary internet connection.

Ledger wallets support more than 1,000 cryptocurrencies, and you’re sure to find most of the top 100 coins. Ledger supports BTC, ADA, ETH, Chainlink (LINK), Zcash (ZEC), AVAX, The Sandbox (SAND), Tether (USDT), BNB, XRP, and loads of other altcoins. 

Ledger wallets are standard-sized USB devices with small screens and two buttons for approving transactions. You can connect a Ledger wallet to a computer or a mobile device with a USB cable. You need to install the Ledger Live software on your computer or phone to use the Ledger wallet.

To store crypto on your Ledger wallet, you need to find the right app for your crypto in the Ledger Live menu and install it on the device. Both the Ledger Nano X and the upgraded Ledger Nano S Plus can store up to 100 apps, while the standard Ledger Nano S can only hold 5 apps.

Besides the industry-leading hardware encryption, Ledger wallets are also secured by passphrases and PIN codes. If you lose your device, you can easily recover your crypto with your seed phrase by entering it into the firmware of another Ledger device.

Conclusion

Taking custody of your crypto means taking full control and responsibility over your assets. There’s no middleman between you and your crypto when you use a non-custodial wallet to store your portfolio. However, you should be careful not to endanger your wallet by clicking on unverified links or sharing your recovery seed phrase with other people. 

If you’re careful and use your non-custodial wallet responsibly, there’s no better way to take care of your assets than by taking their custody into your own hands.