Crypto Self-Custody Risks Outweigh Benefits for Unprepared Investors
Self-custody in crypto refers to users controlling their assets without relying on an exchange or bank. This reduces counterparty risk but places security responsibility directly on the owner.
Crypto adoption has led more investors to explore self-custody for greater control over their assets. However, this comes with risks, such as lost recovery phrases, phishing attacks, and incorrect transactions resulting in permanent losses.
A self-custody wallet provides a 12- or 24-word recovery phrase that can restore access if the original device is lost or damaged. Losing both wallet access and the recovery phrase can result in permanent loss of funds.
Hot wallets, which run on smart devices, are suitable for making transactions, while hardware wallets keep transaction information offline for long-term use. However, vulnerabilities, phishing, and user errors can still cause losses.