Crypto was invented to get rid of middlemen.
To eliminate the counter-party between you and your money.
Yet, seemingly every week, a new story arises of somebody losing millions of dollars by giving their private keys to somebody else.
This blog post is all about "Not Your Keys, Not Your Coins" and what it means in the context of crypto.
"Not your keys, not your coins" is a phrase that emphasizes the importance of maintaining control of one's own private keys and seed phrase.
It means that if you do not have control of the private keys associated with your cryptocurrency wallets, you do not truly own the coins or tokens in those wallets.
This is because whoever controls the private keys has the ability to access and spend the funds in the associated wallet.
Not your keys, not your coins means:
I believe my private property is mine and I am responsible for it.
Responsibility is meaning.
— WaLLrus (@WaLLrusOfficial) February 9, 2023
Initially invented as an alternative to centralized means of payment, cryptocurrencies have much in common with fiat.
Similar to bank-issued money, one can use them as a means of storing value or pay for goods and services.
What makes crypto outstand fiat is the ability to send large volumes of crypto assets overseas in a matter of a few minutes while paying a negligible fee.
More importantly, cryptocurrency enables you to “be your own bank”.
It may not be obvious at the first glance, but this feature is even more valuable than all other perks of crypto assets.
Self-custodial wallets enable cryptocurrency users to get full control over their funds.
Contrast this with custodial wallets, where the private keys are managed by a third-party.
This means that they can spend them as they wish without any chances of a third party blocking their money or losing it because of a hack or other nefarious practices.
However, using such wallets requires specific technical skills.
Thus, the complexity of this approach often scares off non-tech-savvy users.
Centralized cryptocurrency platforms use customers desire for convenience to their advantage.
Indeed, many cryptocurrency users prefer entrusting their coins to centralized entities thanks to their user-friendly interfaces and features that resemble traditional banking accounts.
But don’t be fooled by their beautiful wrap.
Centralized at their core, these platforms gain full control over your funds which puts your coins at risk.
Thus, they can access and spend the funds on all associated wallets for their own benefit.
Remember, not your keys; not your coins. pic.twitter.com/OWfPjMIb8y
— Bitcoin (@Bitcoin) June 8, 2022
What does it all have to do with NYKNYC adage?
In fact, everything.
If you do not control your private keys, you do not truly own your coins or tokens.
You simply rely on someone else's goodwill and consciousness to store your money for you.
There are many ways crypto users give up their keys and, therefore, the security of their funds.
The most common scenarios imply the following three options.
First, one may use wallets provided by centralized exchanges for long-term storage.
Next, users may stake assets on CEXes for earning yield.
Finally, they may fall victim to phishing attacks and give up their keys to scammers.
Typically, CEXes offer non-custodial online wallets that support a huge variety of digital assets.
This makes them a convenient one-stop-shop solution for investors who seek to diversify their portfolios.
CEXes scare regular users with the risks of storing your crypto on self-custodial wallets.
Your PC may be infected by a virus, you may forget your seed phrase, you may lose the hardware device, and so on, and so forth.
While all these scary tales are true, the games that CEXes play are just as dirty.
CEXes may get hacked or go bankrupt.
History knows many cases when reputable exchanges with high security standards were hacked.
Mt.Gox in 2016, Coincheck in 2018, KuCoin in 2020, Crypto.com in 2022 - the list may go on forever.
Even infallible Binance experienced a successful hack in 2019.
In most cases, these exchanges reimbursed users’ losses.
But who will do that in case such a platform goes bankrupt?
CEXes impose restrictions on managing your funds
There are many ways that centralized crypto services can restrict their users in managing their own crypto.
Most centralized exchanges set up limits for depositing and withdrawing crypto.
Also, technical issues on these platforms may hold users back from accessing their funds.
Moreover, they may totally ban users’ accounts from specific regions because of some external geopolitical events.
All in all, giving up the security of your funds for the sake of convenience is not a good idea.
In addition, CEXes often offer yield farming tools with high ROI and a variety of other solutions for passive income.
The interest they pay is typically lower but more stable than on DEXes.
Why would one give up such a profitable and reliable tool?
Well, there is another adage, also beloved by Richard Heart: “don't pick up pennies in front of freight trains”.
In other words, don't chase high-risk yield through centralized entities.
Phishing has been around in the digital world for ages.
When cryptocurrencies came into existence, scammers went on using the same old techniques to steal from unwary users.
The basic approach implies making a person give up the seed phrase so as to grant malicious actors access to his or her wallet.
Such kinds of attacks are as old as time. And yet, they still work perfectly well.
The good news is that protecting your funds from such attacks is not that complicated.
Simply follow the basic rules of security hygiene when browsing, check the veracity of the websites before you grant them access to your crypto wallet, and revoke excessive permissions when the job is complete.
Satoshi Nakamoto invented Bitcoin in 2008 so as to oppose the centralized banking system.
Since TradFi led the whole world into a global crisis, it became obvious that entrusting your funds to someone else is far from secure.
Yet, centralized exchanges make users fall into the same trap once more.
What’s more, they claim that NYKNYC is counterproductive for cryptocurrency mass adoption and that people can’t be trusted with their own keys.
They say this of course, so they can keep making money by chopping their users up with fees.
Using self-custodial services and taking care of your funds’ protection may be a difficult task, that’s true. Yet, the solution is not to entrust your funds to centralized entities but to increase the level of your education.
Here are just a few of the basic tips that can help you protect your crypto if you store it on a self-custodial wallet:
As you may see, this is not rocket science.
With due diligence, a self-custodial wallet represents a much more secure place to store your coins than the wallets offered by centralized parties.
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Disclaimer:Please note that nothing on this website constitutes financial advice. Whilst every effort has been made to ensure that the information provided on this website is accurate, individuals must not rely on this information to make a financial or investment decision. Before making any decision, we strongly recommend you consult a qualified professional who should take into account your specific investment objectives, financial situation and individual needs.
Kate is a blockchain specialist, enthusiast, and adopter, who loves writing about complex technologies and explaining them in simple words. Kate features regularly for Liquid Loans, plus Cointelegraph, Nomics, Cryptopay, ByBit and more.