Understanding crypto ownership: Not your keys, not your coins
In today’s digital landscape, choosing the right wallet for managing cryptocurrencies is crucial. When we store our cryptocurrencies in a crypto exchange, it’s important to understand the technical implications of this arrangement.
In the crypto world, the phrase “Not your keys, not your coins” carries significant meaning. It highlights the fact that when our digital assets are held in an exchange, we technically do not have direct ownership or control over them.
In a cryptocurrency exchange, users create accounts and deposit their digital assets into wallets provided by the exchange.
These wallets are custodial in nature, meaning that the exchange holds the private keys associated with the wallets and is responsible for the security and management of the assets.
While this setup offers convenience and ease of use, it also introduces a level of risk. By entrusting our assets to the exchange, we are essentially relying on the exchange’s security measures and operational practices to safeguard our funds. If the exchange experiences a security breach, insolvency, or any other issues, there is a possibility of losing access to or control over our assets.
On the other hand, when we use a non-custodial wallet or a selfhosted wallet, we retain complete ownership and control over our private keys. Non-custodial wallets, such as software wallets or hardware wallets, allow us to generate and manage our private keys locally.
This means that we have the sole responsibility for safeguarding our keys and securing our funds.
Non-custodial wallets provide a secure and convenient way to store and manage digital assets. However, existing noncustodial wallets come with their own set of challenges, including inaccessibility to average users, complex onboarding processes, the risk of losing seed phrases, and fragmented chains.
Current solutions on the market can be inaccessible to the average user, making it difficult for widespread adoption.
The complexities of blockchain technology and the technical jargon associated with crypto wallets create barriers for non-tech-savvy individuals who want to explore the world of cryptocurrencies.
The onboarding process for crypto wallets can be complex and intimidating. It involves multiple steps, such as creating an account, setting up security measures, and managing seed phrases.
This complexity often discourages new users from entering the crypto space, limiting the growth and accessibility of digital assets.
Another challenge with existing wallets is the risk of losing or having seed phrases stolen. Seed phrases are crucial for accessing and recovering wallets. If a seed phrase is lost or falls into the wrong hands, it can result in the permanent loss of all assets stored in the wallet.
Additionally, the existence of multiple wallets for different blockchain networks adds complexity. Users must manage their assets across various chains, each requiring a separate wallet.
This fragmentation makes it challenging to have a seamless and unified experience in managing and transferring assets across different blockchain networks.
By having exclusive control over our private keys, we eliminate the reliance on third-party intermediaries and reduce the risk of potential loss or compromise of our assets. It grants us the freedom to manage our cryptocurrencies independently, without being subject to the operational risks and potential vulnerabilities of centralised exchanges.
In a nutshell, with non-custodial wallets, users can enjoy greater control and security over their crypto assets while navigating the challenges posed by existing wallet solutions.