Bitcoin is a decentralized, trustless, and distributed ledger. It has been proven to be secure and robust. But despite this, many people still don’t hold their own keys. Instead, they entrust their funds with third-party services like a cryptocurrency exchange. However, this is a bad idea because those platforms can be hacked or down anytime. Now is the time to explore Bitcoin self-custody.
What is Bitcoin Self-Custody?
Self-custody is holding your bitcoin instead of relying on an exchange or custodian service.
The first step in self-custody is securing a wallet that supports your preferred cryptocurrency. One can accomplish this through a digital wallet application, a hardware wallet (like Ledger Nano S), or a paper wallet.
The latter two are typically considered more secure than traditional software wallets because they don’t rely on an internet connection and, therefore, cannot be affected by malware or hackers.
Once you’ve chosen a wallet and purchased your coins, you’ll want to transfer them from the exchange where you bought them into your offline storage device. That is generally done via private keys, long strings of alphanumeric characters representing ownership over certain amounts of cryptocurrency and acting as passwords for user transactions. You will need public (easily accessible) and private keys (hidden safely inside) to send funds from one address to another using Bitcoin!
Benefits of Bitcoin Self-Custody
You can use an online wallet service to keep your coins safe. However, the downside is that taking full control over your bitcoins is not always possible. You trust a third party to protect your bitcoins from hackers and prying eyes.
You should also consider keeping some or all of your coins in self-custody if you’re concerned about government seizure. New regulations may make it harder for individuals to access their bitcoin holdings. That is less likely with hardware wallets because they aren’t connected directly to any exchange.
The Problem with Online Platforms
Online platforms are not secure and can be hacked by criminals. Many people think they have their cryptocurrency in a “safe” place when they transfer it from their wallet to an online exchange or platform.
But these perceptions are misguided. Exchanges use the same infrastructure as other financial institutions. They’re connected to the internet and vulnerable to hacking attempts by malicious actors who want to steal your assets. This risk is exceptionally high for exchange owners that don’t have strong security measures in place to protect customer funds.
If you’ve used any of the primary exchange platforms over the last year or so, you probably know this already. Many of them have been hacked multiple times since 2016 (and some still haven’t recovered). If your coins aren’t safely stored on a hardware wallet like Trezor or Ledger Nano S, there’s no way they’ll remain safe if they’re online.
Why Bitcoiners are Facing New Censorship
The block size debate is causing an increasingly divisive split within the Bitcoin community. As you may know, a few years ago, a group of developers decided to create a new cryptocurrency called Bitcoin Cash (BCH). They then proceeded to fork off Bitcoin and created their own version with larger block sizes. The process is known as “hard forking” and means that two different cryptocurrencies now share the same history to a certain block height.
Bitcoiners face censorship because this split has led some businesses and exchanges to censor one side or another based on who they support in this debate. However, no centralized entity should force users to make a choice. With Bitcoin self-custody, that choice is yours alone to make.
Bitcoin self-custody is more important than ever.
Bitcoin self-custody is a way to protect yourself from censorship. Bitcoin self-custody is also a way to protect yourself from hackers and government surveillance of your financial transactions.
We depend on third parties like PayPal, banks, and credit card companies to hold our money. But unfortunately, hackers or governments can compromise these third parties, who demand that they hand over customer data to track illegal activity.
The only way to truly protect your wealth and privacy is with Bitcoin self-custody. Hold your keys securely so no one else can access them or steal them from you.
All in all, the importance of Bitcoin self-custody is clear.
The advantages are numerous, and it’s a great way to ensure you have full control over your funds. Unfortunately, this method has some downsides (hardware costs and a learning curve). Hopefully, these can be overcome in the future when technology improves!
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