Self-Custody
Definition
Holding your own cryptocurrency private keys rather than trusting a third party like an exchange, giving you complete control over your digital assets.
Self-custody means you hold the private keys to your cryptocurrency, rather than an exchange or custodial service holding them on your behalf. The crypto adage "not your keys, not your coins" encapsulates the philosophy — if someone else controls your keys, they ultimately control your funds.
The case for self-custody became dramatically clear with the collapse of FTX in 2022, where billions in customer funds were lost. Similar incidents with Mt. Gox, Celsius, BlockFi, and Voyager showed that even large, seemingly trustworthy platforms can fail, taking customers' crypto with them.
Self-custody is achieved through hardware wallets (Ledger, Trezor), software wallets (MetaMask, Phantom, Trust Wallet), or paper wallets. Hardware wallets offer the best balance of security and usability for most people. The setup process involves generating a seed phrase that you must securely store.
The tradeoff is responsibility. With self-custody, there's no customer support to call if you lose your seed phrase, no fraud protection if you get phished, and no account recovery if you make a mistake. You are solely responsible for the security and accessibility of your funds.
For portfolio tracking, self-custody introduces complexity because your assets aren't in a single custodial account with clear records. Connecting wallet addresses to tracking software lets you monitor your self-custodied assets alongside exchange-held positions for a complete portfolio view.
Where this appears in Clarity
Clarity automatically tracks and calculates these concepts across your connected accounts.
Related Terms
Frequently Asked Questions
Should beginners use self-custody?
Beginners can start with a trusted exchange and transition to self-custody as they learn. Once you have a meaningful amount, moving to self-custody is recommended. Start with a small test transfer before moving larger amounts.
Can I track self-custodied crypto in a portfolio tracker?
Yes. Most portfolio trackers support connecting wallet addresses to automatically track balances and transactions. In Clarity, you can connect wallet addresses via Alchemy to monitor your self-custodied assets alongside exchange holdings.