Note: Arrington Capital is an investor in C3, a self-custodial crypto exchange, discussed further in this post.
Even those not in crypto learned several valuable lessons last year as a few large crypto companies unravelled over the misuse of crypto funds — all while exposing the significant risk of centralized firms that had ownership of assets. Self-custody in the crypto space is on the rise, as more and more users are looking to take full control of their digital assets. This is evident in the growing popularity of hardware wallets and other self-custody solutions. A recent survey by Coinbase found that 70% of crypto investors now store their own assets in non-custodial storage. It is only a matter of time before that number climbs and includes not just crypto investors but everyone.
Self-custody in crypto refers to the practice of storing and managing your own digital assets, without the need for a third-party custodian. This means that you are responsible for your own private keys, which are the cryptographic keys needed to access and spend your crypto.
Why is self-custody on the rise?
There are a number of reasons why self-custody is becoming increasingly popular. One of the biggest reasons is the growing awareness of the risks associated with storing crypto with third-party custodians. In recent years, there have been a number of high-profile hacks and security breaches at crypto exchanges and wallets. These incidents have shaken the trust of many users, who are now looking to take their crypto into their own hands. For instance, the 2019 hack of Binance led to the theft of over 7,000 BTC, one of the largest cryptocurrency thefts in history.
Another reason for the rise of self-custody is the increasing adoption of decentralized finance (DeFi). DeFi platforms allow users to access financial services, such as lending, borrowing, and trading, without the need for intermediaries. In order to use DeFi platforms, users need to have custody of their own crypto.
Benefits of self-custody
Security: Self-custody is the most secure way to store your crypto. When you store your crypto with a third-party custodian, you are essentially trusting them with your assets. If the custodian is hacked or goes bankrupt, you could lose your crypto. When you self-custody, you are in full control of your own assets and responsible for your own security.
Control: With self-custody, you have full control over your crypto. You can decide when, where, and how to spend it. You are not subject to the whims of a third-party custodian.
Privacy: When you self-custody, your crypto transactions are private and not subject to the scrutiny of a third-party custodian.
Challenges of self-custody
While self-custody has a number of benefits, there are also some challenges to consider. One of the biggest challenges is the responsibility of managing your own private keys. If you lose your private keys, you will lose access to your crypto. It is important to have a robust backup and recovery plan in place.
There is also a matter of the learning curve – it can take some time to learn how to use a self-custody wallet and manage your own private keys. The systems in place today are still a bit clunky, despite some resources available.
What C3 is Addressing
C3.io is a self-custodial cryptocurrency exchange that is redefining crypto trading. It offers the security and autonomy of a self-custodial exchange without compromising on the functionality, performance, and ease of use that users expect from traditional exchanges.
C3.io‘s unique self-custodial model utilizes a hybrid architecture combining off-chain and on-chain components for maximum performance and security. The off-chain component handles instant trade processing and matching, while the on-chain component handles trade settlement. This innovative architecture allows C3.io to offer a trading platform that is both performant and accessible, similar to traditional exchanges. It remains trustless and non-custodial at all times.