Bybit Hack Highlights Risks of Exchange-Based Cryptocurrency Storage

The massive $1.5 billion hack of Bybit in 2026 serves as a stark reminder of the risks associated with keeping cryptocurrency assets on an exchange. Despite exchanges' best efforts to safeguard user funds, they remain a single point of failure for anyone who keeps their balance there.

Self-custody wallets offer a solution by putting the private keys and therefore the coins directly in the hands of the owner, rather than leaving them on someone else's balance sheet. This guide walks through a 12-step process to set up a self-custody wallet for Ethereum and other account-based assets.

The process begins with deciding on a custody model and choosing between hardware or software wallets. It is essential to verify that the hardware wallet is genuine and initialize it offline, generating a seed phrase in the process. The seed phrase must be backed up correctly, and a passphrase can be added for an extra layer of security.

Once the wallet is set up, it's crucial to test it by sending a small transaction and verifying that it goes through successfully. Finally, a full recovery drill should be run before trusting the setup with real money.