REAL CLEAR CRYPTO: The Key to Cryptocurrency – Understanding Self-Custody


By Evan LaMontagne, Sarson Funds Analyst

In the ever-evolving universe of cryptocurrencies, a simple maxim reigns supreme: “not your keys, not your coins.” At the heart of this saying is the principle of self-custody. Self-custody is a foundational pillar in the world of blockchain and empowers permissionless applications that have been rightly hailed for reducing corruption, resisting censorship, and combating discrimination. Self-custody stresses the importance of personal control over one’s digital assets, essentially endorsing the belief that each individual is inherently the rightful controller of their own property and that if you’re not in control of your keys, then the coins are not truly yours.

Differing starkly from traditional banking where institutions safeguard your assets, self-custody in the cryptocurrency world assigns you the role of being your own custodian. You have the exclusive “keys” to access your digital assets. This provides you with complete authority over your own crypto investments and your unique web3 identity. This also comes with the responsibility of safeguarding your assets from potential threats and risks.

As a society, we have had an intermediary between us and our money for so long that it feels normal.  A thoughtful review of the reasons why banks were created in the first place, however, can help us see that this is not the case. 

Banks were created first to help individuals safely store money, and later to serve as a trusted third party to facilitate transactions. Banks as an institution were deemed necessary “overhead” to solve for the safe storage and transferring of value. This is no longer the case.  The technological advancement of Blockchain technology allows individuals to achieve both functions using technology, rather than paying a bank for these services. For the first time in history this is allowing a new degree of financial liberty and self-sovereignty.  It also allows a substantial piece of “financial overhead” to be removed from the economic lives of billions of people, allowing them to keep a greater percentage of their earned wages.

Traditional banks, brokers, and other intermediaries, while offering a sense of security, can often impose constraints like account freezes, access limitations, and even run the risk of insolvency. On the contrary, self-custody frees you from these constraints. It enables you to access and manage your digital wealth anytime, anywhere, without seeking anyone else’s consent. 

In the era of growing digital surveillance, self-custody provides a compelling argument for privacy.  Banks require detailed personal identification to operate an account, leaving an unmistakable digital trail. However, self-custody of cryptocurrencies allows for transactions that keep your identity relatively hidden, providing you with a sense of autonomy that traditional banking systems can’t match.

Critics of self-custody often highlight the risk of losing private keys, and by extension, access to your digital assets. However, this underscores the importance of informed security measures rather than flaws in self-custody itself. Adequate precautions like offline storage, secure hardware wallets, and prudent key management practices can effectively mitigate these risks. Furthermore, self-custody decentralizes the risk of hacking, providing a security layer for the broader cryptocurrency ecosystem against large-scale attacks on centralized exchanges.

Embracing self-custody does require vigilance and responsibility, but it encapsulates the revolutionary spirit of cryptocurrencies – individual control over one’s financial assets. It ushers in financial liberty, ensures privacy, and strengthens security, provided you handle your keys with care. As cryptocurrencies gain wider acceptance, self-custody stands as a powerful tool in shaping an open, resilient, and equitable financial ecosystem. The future of finance may indeed rest in our own hands and could shape the new borderless value transfer status quo.

Disclosures: Not investment advice. The Author, Sarson Funds, Inc. and its affiliated managers may hold positions in any projects mentioned. Talk with your financial advisor before making any investment decisions or have them contact Sarson Funds directly at [email protected] to learn more about the services offered by Sarson Funds or any of its affiliated managers.

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