The ever growing importance of self-custody.
In a world where money is power, the safety of your private keys is at utmost importance. The security of you cryptographically scrambled codes can be worth potentially millions of dollars. Your private keys are like the pin to your bank account and your SSN combined! Now that we have established the importance of keeping your keys to yourself, let’s define some terminology that will help guide us.
- A private key is a secret piece of data that proves your right to spend coins from a specific wallet through a cryptographic signature.
- Cryptography is the branch of mathematics that lets us create mathematical proofs that provide high levels of security.
- A crypto address (or public key) is similar to a physical address or an email. It is the only information you need to provide for someone to pay you with Bitcoin.
*Excerpts from bitcoin.org
The following text will reference consensus methods, if you would like to read further on this, I would recommend reading my article here: Consensus Models Analysis.
The risks of custody on PoW (Proof-of-Work) chains are lower, but still exist. For example, if a master custodian were to arise, who controlled, say all the Bitcoins in existence. Bitcoin would cease to be a decentralized network, even if at its core Bitcoin is distributed, if a few major actors control most of its supply, Bitcoin or any other chain will be rendered useless.
Now when we speak about PoS (Proof-of-Stake), or PoS equivalent chains, the risk of custodial holding is multiplied. If an actor or party has a sufficient percentage of the supply, they could potentially hi-jack the network completely. Not only rendering the currency useless, but the protocol too.
What you should do:
- Move your coins to a non-custodial wallet.
- Keep your public keys safe.
- Educate the people around you.
- Withdraw your crypto from exchanges.
What you should not do:
- Keep crypto on exchanges long-term.
- Use custodial wallets (such as Wax Cloud Wallet).